Did Hedge Funds Drop The Ball On Entegris Inc (ENTG) ?

Nina Todic

Mon, Oct 14, 2019, 6:17 PM

The financial regulations require hedge funds and wealthy investors that crossed the $100 million equity 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 June 28th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Entegris Inc (NASDAQ:ENTG) based on those filings.

Entegris Inc (NASDAQ:ENTG) was in 24 hedge funds' portfolios at the end of the second quarter of 2019. ENTG has experienced an increase in activity from the world's largest hedge funds in recent months. There were 22 hedge funds in our database with ENTG positions at the end of the previous quarter. Our calculations also showed that ENTG isn't among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the latest hedge fund action encompassing Entegris Inc (NASDAQ:ENTG).

What does smart money think about Entegris Inc (NASDAQ:ENTG)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in ENTG over the last 16 quarters. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, GMT Capital held the most valuable stake in Entegris Inc (NASDAQ:ENTG), which was worth $248.5 million at the end of the second quarter. On the second spot was Iridian Asset Management which amassed $116.9 million worth of shares. Moreover, RGM Capital, Millennium Management, and Polar Capital were also bullish on Entegris Inc (NASDAQ:ENTG), allocating a large percentage of their portfolios to this stock.

Now, key money managers have been driving this bullishness. Iridian Asset Management, managed by David Cohen and Harold Levy, assembled the largest position in Entegris Inc (NASDAQ:ENTG). Iridian Asset Management had $116.9 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $11.9 million investment in the stock during the quarter. The following funds were also among the new ENTG investors: Ken Griffin's Citadel Investment Group, Michael Gelband's ExodusPoint Capital, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Entegris Inc (NASDAQ:ENTG) but similarly valued. We will take a look at Leggett & Platt, Incorporated (NYSE:LEG), SYNNEX Corporation (NYSE:SNX), ICU Medical, Inc. (NASDAQ:ICUI), and Science Applications International Corporation (NYSE:SAIC). All of these stocks' market caps match ENTG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LEG,9,29678,-1 SNX,18,213287,7 ICUI,15,344771,0 SAIC,26,430672,-2 Average,17,254602,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $255 million. That figure was $567 million in ENTG's case. Science Applications International Corporation (NYSE:SAIC) is the most popular stock in this table. On the other hand Leggett & Platt, Incorporated (NYSE:LEG) is the least popular one with only 9 bullish hedge fund positions. Entegris Inc (NASDAQ:ENTG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks (view the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ENTG as the stock returned 26.3% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.