Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Liberty Oilfield Services Inc. (NYSE:LBRT).
Is Liberty Oilfield Services Inc. (NYSE:LBRT) an outstanding investment today? The smart money is getting more optimistic. The number of bullish hedge fund positions advanced by 4 recently. Our calculations also showed that LBRT isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s view the new hedge fund action surrounding Liberty Oilfield Services Inc. (NYSE:LBRT).
How are hedge funds trading Liberty Oilfield Services Inc. (NYSE:LBRT)?
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LBRT over the last 14 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, GMT Capital was the largest shareholder of Liberty Oilfield Services Inc. (NYSE:LBRT), with a stake worth $38.1 million reported as of the end of December. Trailing GMT Capital was Millennium Management, which amassed a stake valued at $19.3 million. Citadel Investment Group, Adage Capital Management, and Element Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, some big names were leading the bulls’ herd. Element Capital Management, managed by Jeffrey Talpins, established the largest position in Liberty Oilfield Services Inc. (NYSE:LBRT). Element Capital Management had $3.1 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $2.9 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, D. E. Shaw’s D E Shaw, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks similar to Liberty Oilfield Services Inc. (NYSE:LBRT). We will take a look at CRISPR Therapeutics AG (NASDAQ:CRSP), WestAmerica Bancorp. (NASDAQ:WABC), Aimmune Therapeutics Inc (NASDAQ:AIMT), and Callon Petroleum Company (NYSE:CPE). All of these stocks’ market caps match LBRT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRSP | 11 | 89245 | -5 |
| WABC | 5 | 4479 | 1 |
| AIMT | 16 | 188597 | -2 |
| CPE | 22 | 175464 | -4 |
| Average | 13.5 | 114446 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $76 million in LBRT’s case. Callon Petroleum Company (NYSE:CPE) is the most popular stock in this table. On the other hand WestAmerica Bancorp. (NASDAQ:WABC) is the least popular one with only 5 bullish hedge fund positions. Liberty Oilfield Services Inc. (NYSE:LBRT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on LBRT as the stock returned 33.4% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
