Hedge Fund Interest In SM Energy Co. (SM) Flatlines

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the vast research capabilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside in these ignored corners of the equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Hedge fund interest in SM Energy Co. (NYSE:SM) shares was flat during the last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives however. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Asbury Automotive Group, Inc. (NYSE:ABG), Teekay Corporation (NYSE:TK), and CyrusOne Inc (NASDAQ:CONE) to gather more data points.

According to most market participants, hedge funds are perceived as unimportant, old investment vehicles of years past. While there are over an 8,000 funds with their doors open today, our experts hone in on the bigwigs of this group, around 700 funds. These money managers orchestrate the lion’s share of the smart money’s total asset base, and by tailing their highest performing stock picks, Insider Monkey has spotted various investment strategies that have historically surpassed Mr. Market. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, let’s take a look at the new action surrounding SM Energy Co. (NYSE:SM).

How have hedgies been trading SM Energy Co. (NYSE:SM)?

Heading into Q4, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or had 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 most valuable position in SM Energy Co. (NYSE:SM). Millennium Management has a $62.7 million position in the stock, comprising 0.1% of its 13F portfolio. The second-largest stake is held by First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, which holds a $38.6 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism consist of Vince Maddi and Shawn Brennan’s SIR Capital Management, Paul Singer’s Elliott Management, and Renaissance Technologies.

Judging by the fact that SM Energy Co. (NYSE:SM) has experienced declining sentiment from the entirety of the hedge funds that we track, we can see that there lies a certain “tier” of hedge funds that slashed their positions entirely heading into Q4. Interestingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, comprising close to $22.4 million in stock. Glenn Russell Dubin’s fund, Highbridge Capital Management, also cut its stock, about $18.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to SM Energy Co. (NYSE:SM). We will take a look at Asbury Automotive Group, Inc. (NYSE:ABG), Teekay Corporation (NYSE:TK), CyrusOne Inc (NASDAQ:CONE), and Monro Muffler Brake Inc (NASDAQ:MNRO). This group of stocks’ market valuations are closest to SM Energy Co.’s market valuation.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $398 million. That figure was $229 million in SM Energy Co.’s case. Asbury Automotive Group, Inc. (NYSE:ABG) is the most popular stock in this table. On the other hand Monro Muffler Brake Inc (NASDAQ:MNRO) is the least popular one with only 16 bullish hedge fund positions. SM Energy Co. (NYSE:SM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Asbury Automotive might be a better candidate to consider a long position in.