Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Pampa Energia S.A. (NYSE:PAM).
Pampa Energia S.A. (NYSE:PAM) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. Pampa Energia S.A. (NYSE:PAM) was in 5 hedge funds’ portfolios at the end of March. The all time high for this statistic is 21. There were 6 hedge funds in our database with PAM holdings at the end of December. Our calculations also showed that PAM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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’ 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 S&P 500 ETFs by 115 percentage points since March 2017 (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.
Howard Marks of Oaktree Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $23 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s go over the latest hedge fund action surrounding Pampa Energia S.A. (NYSE:PAM).
Do Hedge Funds Think PAM Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in PAM a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Pampa Energia S.A. (NYSE:PAM) was held by OZ Management, which reported holding $25.8 million worth of stock at the end of December. It was followed by Oaktree Capital Management with a $12.6 million position. Other investors bullish on the company included Rima Senvest Management, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position OZ Management allocated the biggest weight to Pampa Energia S.A. (NYSE:PAM), around 0.21% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, dishing out 0.19 percent of its 13F equity portfolio to PAM.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Highland Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified PAM as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks similar to Pampa Energia S.A. (NYSE:PAM). These stocks are Donnelley Financial Solutions, Inc. (NYSE:DFIN), The Geo Group, Inc. (NYSE:GEO), Fanhua Inc. (NASDAQ:FANH), Lindblad Expeditions Holdings Inc (NASDAQ:LIND), Saul Centers Inc (NYSE:BFS), Passage Bio, Inc. (NASDAQ:PASG), and Avid Technology, Inc. (NASDAQ:AVID). This group of stocks’ market caps are closest to PAM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DFIN | 16 | 134133 | 1 |
| GEO | 13 | 72580 | -5 |
| FANH | 7 | 2532 | -1 |
| LIND | 11 | 105194 | 0 |
| BFS | 8 | 20514 | 2 |
| PASG | 14 | 287643 | 4 |
| AVID | 22 | 319667 | -4 |
| Average | 13 | 134609 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $45 million in PAM’s case. Avid Technology, Inc. (NASDAQ:AVID) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Pampa Energia S.A. (NYSE:PAM) is even less popular than FANH. Our overall hedge fund sentiment score for PAM is 11.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th but managed to beat the market by 6.1 percentage points. A small number of hedge funds were also right about betting on PAM, though not to the same extent, as the stock returned 11.9% since the end of March (through June 18th) and outperformed the market as well.
