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The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of e.l.f. Beauty, Inc. (NYSE:ELF) and find out how it is affected by hedge funds' moves.
e.l.f. Beauty, Inc. (NYSE:ELF) has seen an increase in activity from the world's largest hedge funds lately. Our calculations also showed that ELF isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a gander at the new hedge fund action surrounding e.l.f. Beauty, Inc. (NYSE:ELF).
How have hedgies been trading e.l.f. Beauty, Inc. (NYSE:ELF)?
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ELF over the last 15 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Marathon Partners was the largest shareholder of e.l.f. Beauty, Inc. (NYSE:ELF), with a stake worth $46.9 million reported as of the end of March. Trailing Marathon Partners was Bares Capital Management, which amassed a stake valued at $23.1 million. Portolan Capital Management, Balyasny Asset Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.