Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Contango Oil & Gas Company (NYSE:MCF) changed during the first quarter.
Contango Oil & Gas Company (NYSE:MCF) has experienced a decrease in hedge fund sentiment of late. MCF was in 3 hedge funds’ portfolios at the end of the third quarter of 2019. There were 5 hedge funds in our database with MCF positions at the end of the previous quarter. Our calculations also showed that MCF 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.
Why do we pay any attention at all to hedge fund sentiment? 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.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a gander at the latest hedge fund action encompassing Contango Oil & Gas Company (NYSE:MCF).
What have hedge funds been doing with Contango Oil & Gas Company (NYSE:MCF)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the second quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in MCF a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Contango Oil & Gas Company (NYSE:MCF) was held by Millennium Management, which reported holding $0.6 million worth of stock at the end of September. It was followed by Proxima Capital Management with a $0.4 million position. The only other hedge fund that is bullish on the company was Two Sigma Advisors.
Seeing as Contango Oil & Gas Company (NYSE:MCF) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of fund managers that elected to cut their positions entirely by the end of the third quarter. Interestingly, Phil Frohlich’s Prescott Group Capital Management sold off the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling close to $1.5 million in stock. Ken Griffin’s fund, Citadel Investment Group, also said goodbye to its stock, about $0 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to Contango Oil & Gas Company (NYSE:MCF). These stocks are Fennec Pharmaceuticals Inc. (NASDAQ:FENC), Exfo Inc (NASDAQ:EXFO), Checkpoint Therapeutics, Inc. (NASDAQ:CKPT), and Sotherly Hotels Inc (NASDAQ:SOHO). This group of stocks’ market values are similar to MCF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FENC | 6 | 33963 | 0 |
| EXFO | 1 | 4436 | 0 |
| CKPT | 2 | 596 | -2 |
| SOHO | 2 | 4722 | 1 |
| Average | 2.75 | 10929 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.75 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $1 million in MCF’s case. Fennec Pharmaceuticals Inc. (NASDAQ:FENC) is the most popular stock in this table. On the other hand Exfo Inc (NASDAQ:EXFO) is the least popular one with only 1 bullish hedge fund positions. Contango Oil & Gas Company (NYSE:MCF) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on MCF as the stock returned 18.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.