The future path of crude oil and natural gas prices is a mystery, as it depends on a multiple factors including the demand for petroleum products and natural gas, and the global levels of production, among other factors. Given the fact that the development and performance of the energy industry is strongly linked to the aforementioned path of prices, it becomes quite tricky to imagine in which direction this sector is set to move towards. However, we meticulously analyzed the latest 13Fs filed with the SEC and identified five smid-cap (or small/mid-cap) companies that hedge funds have been piling into. These five smid-cap energy stocks are represented by: Macquarie Infrastructure Corporation (NYSE:MIC), Newfield Exploration Co. (NYSE:NFX), Whiting Petroleum Corp. (NYSE:WLL), Range Resources Corporation (NYSE:RRC), and FMC Technologies Inc. (NYSE:FTI).
Why do we pay attention to hedge fund sentiment. Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 118% over the last 35 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).
Macquarie Infrastructure Corporation (NYSE:MIC) is at the top of our list of smid-cap energy stocks that hedge funds are in love with. 69 hedge funds within our database of over 700 funds owned stakes in the company at the end of the second quarter, one less than in the prior quarter. The value of all of these stakes added up to $2.07 billion, also lower than the $2.30 billion figure registered a quarter ago. Macquarie recently announced a second quarter cash dividend of $1.11 per share, which marks an increase of 3.7% from the dividend paid in the first quarter and an increase of 16.8% year-over-year. Macquarie has increased its cash dividend for seven quarters in a row and plans to increase its dividend in the upcoming quarters as well, which suggests the company’s confidence in the stable performance of its businesses. Apart from the cash dividends, the company’s long-term investors have also registered a year-to-date gain of 6% through the appreciation of the stock. Richard McGuire’s Marcato Capital Management held its stake in Macquarie Infrastructure Corporation (NYSE:MIC) unchanged during the second quarter at 3.53 million shares.
Moving on to Newfield Exploration Co. (NYSE:NFX), there were 55 hedge funds with positions in the company at the end of the second quarter, compared to 50 funds three months earlier. Still, the value of these positions slid to $1.46 billion from $1.47 billion over the same period. The shares of the independent energy company that engages in the exploration for, and production of, crude oil and natural gas have risen by nearly 14% since the beginning of the year. Meanwhile, Newfield just increased its 2015 domestic production guidance to 48.5 – 50.0 million barrels of oil equivalent (MMBOE) after reporting strong oil and gas production of 14.1 million MMBOE in the second quarter. Ken Griffin’s Citadel Investment Group is the largest equity holder of Newfield Exploration Co. (NYSE:NFX) within our database, holding a 7.90 million-share stake.
Next up on our list is Whiting Petroleum Corp. (NYSE:WLL), which has seen its stock plummet by 52% year-to-date, partly owning to the volatile oil prices. Although the number of hedge funds with long positions in this stock decreased during the quarter to 53 from 61, the value of their holdings went up to $2.17 billion from $1.97 billion. The independent oil and gas company delivered stronger-than-expected production in the second quarter, posting another record quarterly production, of 170,000 BOEs per day. This success has been mainly supported by the company’s newest completion designs, which delivered production increases of 40% to 50% in comparison to its older offset wells. John Labanowski’s Brenham Capital Management initiated a new 1.25 million share-position in Whiting Petroleum Corp. (NYSE:WLL) during the quarter.
Range Resources Corporation (NYSE:RRC) also received investor confidence during the second quarter, as the number of hedge funds with positions in the company rose to 42 from 39. However, the value of their positions declined to $1.23 billion from $1.28 billion over the quarter. Analysts believe there is a good deal of upside potential for the company, which currently ranks as just the 14th-largest natural gas producer in the U.S, but has over 1.7 million net acreage, including a good deal of net acreage in the Marcellus Shale, one of the most economically-viable natural gas fields in the U.S. RRC expects to devote as much as 95% of its capital towards this year. The performance of the company’s stock has been disappointing for its investors, as the shares have lost over 37% year-to-date, which is making it more tempting for new investors. Ross Margolies’ Stelliam Investment Management continued to be bullish on Range Resources Corporation (NYSE:RRC) in the second quarter, boosting its stake to 2.41 million shares.
Last but not least, 37 hedge funds within our extensive database had FMC Technologies Inc. (NYSE:FTI) in their portfolios at the end of the second quarter, seven more quarter-over-quarter. At the same time, the value of the shares held by these hedge funds amounted to $1.23 billion, up from $710.49 million registered a quarter ago. The stock’s performance this year wasn’t in any way better than the performance of the previously-discussed stocks, delivering a negative return of nearly 36% year-to-date. There is no doubt that the company’s shares have been partly affected by the overall pullback in energy stocks. However, FMC’s decision to cut its workforce in its subsea segment and its lower-than-expected earnings have played an important role in the company’s poor stock performance as well. Jamie Zimmerman’s Litespeed Management acquired a 1.23 million-share stake in FMC Technologies Inc. (NYSE:FTI) during the second quarter.
Disclosure: None
