Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 13.1% in the 2.5 months of 2019 (including dividend payments). Conversely, hedge funds’ 15 preferred S&P 500 stocks generated a return of 19.7% during the same period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Matador Resources Co (NYSE:MTDR).
Hedge fund interest in Matador Resources Co (NYSE:MTDR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MTDR to other stocks including CONMED Corporation (NASDAQ:CNMD), Ares Management L.P. (NYSE:ARES), and Capitol Federal Financial, Inc. (NASDAQ:CFFN) to get a better sense of its popularity.
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 32 percentage points since May 2014 through March 12, 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.
Let’s take a glance at the recent hedge fund action encompassing Matador Resources Co (NYSE:MTDR).
How have hedgies been trading Matador Resources Co (NYSE:MTDR)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in MTDR a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Millennium Management, managed by Israel Englander, holds the number one position in Matador Resources Co (NYSE:MTDR). Millennium Management has a $40.6 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Steve Cohen of Point72 Asset Management, with a $21.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism contain Ken Griffin’s Citadel Investment Group, Chuck Royce’s Royce & Associates and Jim Simons’s Renaissance Technologies.
Due to the fact that Matador Resources Co (NYSE:MTDR) has faced declining sentiment from the smart money, logic holds that there exists a select few funds that decided to sell off their positions entirely heading into Q3. It’s worth mentioning that Principal Global Investors’s Columbus Circle Investors cut the largest position of all the hedgies monitored by Insider Monkey, comprising about $11.5 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund cut about $1.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Matador Resources Co (NYSE:MTDR) but similarly valued. These stocks are CONMED Corporation (NASDAQ:CNMD), Ares Management Corporation (NYSE:ARES), Capitol Federal Financial, Inc. (NASDAQ:CFFN), and ExlService Holdings, Inc. (NASDAQ:EXLS). This group of stocks’ market values resemble MTDR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNMD | 25 | 180478 | 4 |
| ARES | 11 | 206059 | -4 |
| CFFN | 9 | 160967 | -3 |
| EXLS | 11 | 36147 | 1 |
| Average | 14 | 145913 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $146 million. That figure was $99 million in MTDR’s case. CONMED Corporation (NASDAQ:CNMD) is the most popular stock in this table. On the other hand Capitol Federal Financial, Inc. (NASDAQ:CFFN) is the least popular one with only 9 bullish hedge fund positions. Matador Resources Co (NYSE:MTDR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on MTDR as the stock returned 41% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
