Hedge Funds Are Betting On Matador Resources Co (MTDR)

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Matador Resources Co (NYSE:MTDR) investors should be aware of an increase in hedge fund sentiment in recent months. MTDR was in 13 hedge funds’ portfolios at the end of the third quarter of 2016. There were 12 hedge funds in our database with MTDR positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. 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 ACI Worldwide Inc (NASDAQ:ACIW), Nord Anglia Education Inc (NYSE:NORD), and Tenet Healthcare Corp (NYSE:THC) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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What have hedge funds been doing with Matador Resources Co (NYSE:MTDR)?

At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 8% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards MTDR over the last 5 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Israel Englander’s Millennium Management holds the largest position in Matador Resources Co (NYSE:MTDR). Millennium Management has a $17.3 million position in the stock. Coming in second is Clough Capital Partners, led by Charles Clough, holding a $13.9 million position. Other professional money managers that are bullish encompass Michael Platt and William Reeves’ BlueCrest Capital Mgmt., and Chuck Royce’s Royce & Associates. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now, key money managers were breaking ground themselves. Clough Capital Partners initiated the most outsized position in Matador Resources Co (NYSE:MTDR). Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also made a $10.7 million investment in the stock during the quarter. The other funds with brand new MTDR positions are Kenneth Tropin’s Graham Capital Management, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, and Ken Griffin’s Citadel Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Matador Resources Co (NYSE:MTDR) but similarly valued. These stocks are ACI Worldwide Inc (NASDAQ:ACIW), Nord Anglia Education Inc (NYSE:NORD), Tenet Healthcare Corp (NYSE:THC), and Pegasystems Inc. (NASDAQ:PEGA). This group of stocks’ market valuations are similar to MTDR’s market valuation.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $322 million. That figure was $65 million in MTDR’s case. Tenet Healthcare Corp (NYSE:THC) is the most popular stock in this table. On the other hand Nord Anglia Education Inc (NYSE:NORD) is the least popular one with only 7 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard THC might be a better candidate to consider taking a long position in.

Disclosure: None