How do we determine whether Southwestern Energy Company (NYSE:SWN) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Southwestern Energy Company (NYSE:SWN) investors should pay attention to a decrease in hedge fund sentiment in recent months. SWN was in 14 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with SWN holdings at the end of the previous quarter. Our calculations also showed that SWN 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Ray Dalio of Bridgewater Associates
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 gander at the key hedge fund action surrounding Southwestern Energy Company (NYSE:SWN).
How are hedge funds trading Southwestern Energy Company (NYSE:SWN)?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in SWN 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.
Among these funds, AQR Capital Management held the most valuable stake in Southwestern Energy Company (NYSE:SWN), which was worth $52.6 million at the end of the third quarter. On the second spot was Bridgewater Associates which amassed $30.4 million worth of shares. Kopernik Global Investors, Arrowstreet Capital, and Fisher Asset Management 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 Kopernik Global Investors allocated the biggest weight to Southwestern Energy Company (NYSE:SWN), around 4.39% of its 13F portfolio. Bridgewater Associates is also relatively very bullish on the stock, dishing out 0.27 percent of its 13F equity portfolio to SWN.
Due to the fact that Southwestern Energy Company (NYSE:SWN) has experienced a decline in interest from the smart money, it’s easy to see that there were a few money managers that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management dropped the largest investment of all the hedgies watched by Insider Monkey, comprising about $42.8 million in stock, and Ross Margolies’s Stelliam Investment Management was right behind this move, as the fund dropped about $4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Southwestern Energy Company (NYSE:SWN) but similarly valued. These stocks are Innovative Industrial Properties, Inc. (NYSE:IIPR), M/I Homes Inc (NYSE:MHO), CSW Industrials, Inc. (NASDAQ:CSWI), and Addus Homecare Corporation (NASDAQ:ADUS). This group of stocks’ market valuations are similar to SWN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IIPR | 15 | 50763 | 5 |
| MHO | 18 | 63238 | 8 |
| CSWI | 19 | 53910 | 0 |
| ADUS | 23 | 158689 | 6 |
| Average | 18.75 | 81650 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $145 million in SWN’s case. Addus Homecare Corporation (NASDAQ:ADUS) is the most popular stock in this table. On the other hand Innovative Industrial Properties, Inc. (NYSE:IIPR) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Southwestern Energy Company (NYSE:SWN) is even less popular than IIPR. Hedge funds dodged a bullet by taking a bearish stance towards SWN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SWN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SWN investors were disappointed as the stock returned -5.7% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
