Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
SM Energy Co (NYSE:SM) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. SM was in 28 hedge funds’ portfolios at the end of the third quarter of 2016. There were 20 hedge funds in our database with SM 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 Matthews International Corp (NASDAQ:MATW), MasTec, Inc. (NYSE:MTZ), and Vishay Intertechnology (NYSE:VSH) to gather more data points.
Follow Sm Energy Co (NYSE:SM)
Follow Sm Energy Co (NYSE:SM)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Keeping this in mind, let’s analyze the key action encompassing SM Energy Co (NYSE:SM).
How have hedgies been trading SM Energy Co (NYSE:SM)?
At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 40% surge from the previous quarter, pushing hedge fund ownership to new heights in the last year. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the number one position in SM Energy Co. (NYSE:SM), worth close to $50.1 million. On Millennium Management’s heels is Vince Maddi and Shawn Brennan of SIR Capital Management, with a $41 million position; 5.4% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish consist of D E Shaw, Rob Citrone’s Discovery Capital Management, and Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC.
As industry-wide interest jumped, key hedge funds have jumped into SM Energy Co (NYSE:SM) headfirst. Discovery Capital Management initiated the biggest position in SM Energy Co (NYSE:SM). Discovery Capital Management had $29.6 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $16.9 million position during the quarter. The following funds were also among the new SM investors: Kenneth Tropin’s Graham Capital Management, Todd J. Kantor’s Encompass Capital Advisors, and Robert Vollero and Gentry T. Beach’s Vollero Beach Capital Partners.
Let’s now take a look at hedge fund activity in other stocks similar to SM Energy Co (NYSE:SM). We will take a look at Matthews International Corp (NASDAQ:MATW), MasTec, Inc. (NYSE:MTZ), Vishay Intertechnology (NYSE:VSH), and Intersil Corp (NASDAQ:ISIL). This group of stocks’ market valuations match SM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MATW | 10 | 22075 | 3 |
| MTZ | 23 | 294067 | 0 |
| VSH | 17 | 272131 | 3 |
| ISIL | 30 | 318563 | 16 |
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 $227 million. That figure was $322 million in SM’s case. Intersil Corp (NASDAQ:ISIL) is the most popular stock in this table. On the other hand Matthews International Corp (NASDAQ:MATW) is the least popular one with only 10 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, as we’d rather spend our time researching stocks that hedge funds are piling on. In this regard both ISIL and SM might be good candidates to consider long positions in.
Disclosure: None
