Did Hedge Funds Make The Right Call On Apache Corporation (APA) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Apache Corporation (NYSE:APA) based on that data and determine whether they were really smart about the stock.

Apache Corporation (NYSE:APA) investors should pay attention to an increase in hedge fund interest recently. APA was in 35 hedge funds’ portfolios at the end of March. There were 34 hedge funds in our database with APA holdings at the end of the previous quarter. Our calculations also showed that APA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ron Gutfleish of Elm Ridge Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the recent hedge fund action encompassing Apache Corporation (NYSE:APA).

How are hedge funds trading Apache Corporation (NYSE:APA)?

At the end of the first quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in APA a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Among these funds, Orbis Investment Management held the most valuable stake in Apache Corporation (NYSE:APA), which was worth $66.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $13.3 million worth of shares. Balyasny Asset Management, Citadel Investment Group, and D E Shaw 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 Orbis Investment Management allocated the biggest weight to Apache Corporation (NYSE:APA), around 0.63% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, earmarking 0.53 percent of its 13F equity portfolio to APA.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the largest position in Apache Corporation (NYSE:APA). Balyasny Asset Management had $9.7 million invested in the company at the end of the quarter. Mike Masters’s Masters Capital Management also made a $4.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Steve Cohen’s Point72 Asset Management, and Peter Muller’s PDT Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Apache Corporation (NYSE:APA) but similarly valued. We will take a look at Bandwidth Inc. (NASDAQ:BAND), Cleveland-Cliffs Inc (NYSE:CLF), ServisFirst Bancshares, Inc. (NASDAQ:SFBS), and Phoenix Tree Holdings Limited (NYSE:DNK). This group of stocks’ market valuations are similar to APA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $142 million in APA’s case. Bandwidth Inc. (NASDAQ:BAND) is the most popular stock in this table. On the other hand Phoenix Tree Holdings Limited (NYSE:DNK) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Apache Corporation (NYSE:APA) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on APA as the stock returned 223.9% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.