Here is What Hedge Funds Really Think About Hess Corporation (HES)

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Hess Corporation (NYSE:HES) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. HES was in 35 hedge funds’ portfolios at the end of the second quarter of 2019. There were 29 hedge funds in our database with HES positions at the end of the previous quarter. Our calculations also showed that HES isn’t among the 30 most popular stocks among hedge funds (see the video below).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the latest hedge fund action encompassing Hess Corporation (NYSE:HES).

How are hedge funds trading Hess Corporation (NYSE:HES)?

At Q2’s end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HES over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Elliott Management, managed by Paul Singer, holds the number one position in Hess Corporation (NYSE:HES). Elliott Management has a $1.0333 billion position in the stock, comprising 6.9% of its 13F portfolio. On Elliott Management’s heels is Fisher Asset Management, led by Ken Fisher, holding a $142.4 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish contain Robert Bishop’s Impala Asset Management, and Michael A. Price and Amos Meron’s Empyrean Capital Partners.

As one would reasonably expect, key hedge funds have been driving this bullishness. Fisher Asset Management, managed by Ken Fisher, assembled the biggest position in Hess Corporation (NYSE:HES). Fisher Asset Management had $142.4 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also made a $35 million investment in the stock during the quarter. The following funds were also among the new HES investors: Anand Parekh’s Alyeska Investment Group, David Harding’s Winton Capital Management, and Phill Gross and Robert Atchinson’s Adage Capital Management.

Let’s go over hedge fund activity in other stocks similar to Hess Corporation (NYSE:HES). We will take a look at Ctrip.com International, Ltd. (NASDAQ:CTRP), Pembina Pipeline Corp (NYSE:PBA), Snap Inc. (NYSE:SNAP), and IAC/InterActiveCorp (NASDAQ:IAC). This group of stocks’ market caps are closest to HES’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $1155 million. That figure was $1576 million in HES’s case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 12 bullish hedge fund positions. Hess Corporation (NYSE:HES) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HES wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HES were disappointed as the stock returned -4.5% during the third quarter 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 many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.