Were Hedge Funds Right About Encore Capital Group, Inc. (ECPG)?
The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st. We at Insider Monkey have made an extensive database of more than 866 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Encore Capital Group, Inc. (NASDAQ:ECPG) based on those filings.
Is Encore Capital Group, Inc. (NASDAQ:ECPG) a marvelous investment now? Money managers were getting less optimistic. The number of bullish hedge fund bets dropped by 2 recently. Encore Capital Group, Inc. (NASDAQ:ECPG) was in 18 hedge funds' portfolios at the end of March. The all time high for this statistic is 20. Our calculations also showed that ECPG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Howard Marks of Oaktree Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we're going to take a look at the fresh hedge fund action surrounding Encore Capital Group, Inc. (NASDAQ:ECPG).
Do Hedge Funds Think ECPG Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ECPG over the last 23 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, BloombergSen was the largest shareholder of Encore Capital Group, Inc. (NASDAQ:ECPG), with a stake worth $34.1 million reported as of the end of March. Trailing BloombergSen was D E Shaw, which amassed a stake valued at $9.1 million. Citadel Investment Group, AQR Capital Management, and Second Curve Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Second Curve Capital allocated the biggest weight to Encore Capital Group, Inc. (NASDAQ:ECPG), around 3.86% of its 13F portfolio. BloombergSen is also relatively very bullish on the stock, earmarking 1.86 percent of its 13F equity portfolio to ECPG.
Since Encore Capital Group, Inc. (NASDAQ:ECPG) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few money managers who sold off their full holdings by the end of the first quarter. Interestingly, Howard Marks's Oaktree Capital Management dumped the largest position of the 750 funds tracked by Insider Monkey, valued at about $14.7 million in stock. David Costen Haley's fund, HBK Investments, also cut its stock, about $2.5 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds by the end of the first quarter.
Let's now take a look at hedge fund activity in other stocks similar to Encore Capital Group, Inc. (NASDAQ:ECPG). We will take a look at Designer Brands Inc. (NYSE:DBI), Safety Insurance Group, Inc. (NASDAQ:SAFT), K12 Inc. (NYSE:LRN), Matthews International Corp (NASDAQ:MATW), Kosmos Energy Ltd (NYSE:KOS), Teekay LNG Partners L.P. (NYSE:TGP), and Dime Community Bancshares, Inc. (NASDAQ:DCOM). All of these stocks' market caps match ECPG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DBI,18,110113,1 SAFT,15,43641,3 LRN,14,101456,0 MATW,15,89807,-1 KOS,8,16686,-2 TGP,9,29517,-1 DCOM,11,186535,1 Average,12.9,82536,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $69 million in ECPG's case. Designer Brands Inc. (NYSE:DBI) is the most popular stock in this table. On the other hand Kosmos Energy Ltd (NYSE:KOS) is the least popular one with only 8 bullish hedge fund positions. Encore Capital Group, Inc. (NASDAQ:ECPG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ECPG is 80. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and still beat the market by 10.1 percentage points. Hedge funds were also right about betting on ECPG, though not to the same extent, as the stock returned 14% since Q1 (through July 23rd) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.
