We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Solaris Oilfield Infrastructure, Inc. (NYSE:SOI).
Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) shareholders have witnessed a decrease in hedge fund interest in recent months. SOI was in 9 hedge funds’ portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with SOI holdings at the end of the previous quarter. Our calculations also showed that SOI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the recent hedge fund action regarding Solaris Oilfield Infrastructure, Inc. (NYSE:SOI).
How are hedge funds trading Solaris Oilfield Infrastructure, Inc. (NYSE:SOI)?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SOI over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Adage Capital Management was the largest shareholder of Solaris Oilfield Infrastructure, Inc. (NYSE:SOI), with a stake worth $19.3 million reported as of the end of September. Trailing Adage Capital Management was Millennium Management, which amassed a stake valued at $12.5 million. Encompass Capital Advisors, Citadel Investment Group, and Renaissance Technologies 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 GeoSphere Capital Management allocated the biggest weight to Solaris Oilfield Infrastructure, Inc. (NYSE:SOI), around 6.35% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, setting aside 0.84 percent of its 13F equity portfolio to SOI.
Due to the fact that Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) has experienced declining sentiment from the smart money, it’s safe to say that there is a sect of hedgies that slashed their positions entirely heading into Q4. Intriguingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital dropped the biggest stake of the 750 funds watched by Insider Monkey, valued at an estimated $8.9 million in stock. Richard Driehaus’s fund, Driehaus Capital, also sold off its stock, about $5 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 5 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) but similarly valued. These stocks are Corenergy Infrastructure Trust Inc (NYSE:CORR), Innophos Holdings, Inc. (NASDAQ:IPHS), Fly Leasing Ltd (NYSE:FLY), and B. Riley Financial, Inc. (NASDAQ:RILY). This group of stocks’ market valuations are similar to SOI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CORR | 9 | 66642 | -1 |
| IPHS | 12 | 42749 | 0 |
| FLY | 7 | 70263 | 0 |
| RILY | 14 | 118890 | 4 |
| Average | 10.5 | 74636 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $67 million in SOI’s case. B. Riley Financial, Inc. (NASDAQ:RILY) is the most popular stock in this table. On the other hand Fly Leasing Ltd (NYSE:FLY) is the least popular one with only 7 bullish hedge fund positions. Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SOI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SOI investors were disappointed as the stock returned -20% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
