Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first half of 2019. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Viper Energy Partners LP (NASDAQ:VNOM) to find out whether it was one of their high conviction long-term ideas.
Is Viper Energy Partners LP (NASDAQ:VNOM) a safe investment right now? Prominent investors are becoming less hopeful. The number of long hedge fund bets retreated by 4 recently. Our calculations also showed that VNOM isn’t among the 30 most popular stocks among hedge funds (view the video below). VNOM was in 13 hedge funds’ portfolios at the end of June. There were 17 hedge funds in our database with VNOM positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
According to most traders, hedge funds are seen as underperforming, outdated investment tools of the past. While there are greater than 8000 funds with their doors open at present, We look at the leaders of this group, about 750 funds. It is estimated that this group of investors orchestrate bulk of the hedge fund industry’s total asset base, and by keeping an eye on their finest picks, Insider Monkey has found numerous investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a glance at the recent hedge fund action regarding Viper Energy Partners LP (NASDAQ:VNOM).
What have hedge funds been doing with Viper Energy Partners LP (NASDAQ:VNOM)?
At Q2’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in VNOM a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Viper Energy Partners LP (NASDAQ:VNOM) was held by Cardinal Capital, which reported holding $42.9 million worth of stock at the end of March. It was followed by Alyeska Investment Group with a $35.6 million position. Other investors bullish on the company included Soros Fund Management, Millennium Management, and Arosa Capital Management.
Due to the fact that Viper Energy Partners LP (NASDAQ:VNOM) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that slashed their full holdings by the end of the second quarter. Intriguingly, Alec Litowitz and Ross Laser’s Magnetar Capital sold off the biggest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $5.1 million in stock. Josh Donfeld and David Rogers’s fund, Castle Hook Partners, also dropped its stock, about $1.8 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Viper Energy Partners LP (NASDAQ:VNOM) but similarly valued. We will take a look at Trex Company, Inc. (NYSE:TREX), Floor & Decor Holdings, Inc. (NYSE:FND), Lumentum Holdings Inc (NASDAQ:LITE), and Wintrust Financial Corporation (NASDAQ:WTFC). All of these stocks’ market caps match VNOM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TREX | 19 | 185384 | -1 |
| FND | 21 | 381803 | -10 |
| LITE | 30 | 341777 | -1 |
| WTFC | 23 | 394159 | 0 |
| Average | 23.25 | 325781 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $160 million in VNOM’s case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand Trex Company, Inc. (NYSE:TREX) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Viper Energy Partners LP (NASDAQ:VNOM) is even less popular than TREX. Hedge funds dodged a bullet by taking a bearish stance towards VNOM. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VNOM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VNOM investors were disappointed as the stock returned -8.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
