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 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this 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 Montage Resources Corporation (NYSE:MR).
Montage Resources Corporation (NYSE:MR) has seen an increase in hedge fund interest recently. MR was in 12 hedge funds’ portfolios at the end of the first quarter of 2019. There were 8 hedge funds in our database with MR positions at the end of the previous quarter. Our calculations also showed that mr isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to check out the recent hedge fund action regarding Montage Resources Corporation (NYSE:MR).
How are hedge funds trading Montage Resources Corporation (NYSE:MR)?
At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MR over the last 15 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Axar Capital held the most valuable stake in Montage Resources Corporation (NYSE:MR), which was worth $18.8 million at the end of the first quarter. On the second spot was Raging Capital Management which amassed $14.5 million worth of shares. Moreover, GLG Partners, MAK Capital One, and D E Shaw were also bullish on Montage Resources Corporation (NYSE:MR), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, some big names were breaking ground themselves. Axar Capital, managed by Andrew Axelrod, assembled the biggest position in Montage Resources Corporation (NYSE:MR). Axar Capital had $18.8 million invested in the company at the end of the quarter. William C. Martin’s Raging Capital Management also made a $14.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners, Michael Kaufman’s MAK Capital One, and D. E. Shaw’s D E Shaw.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Montage Resources Corporation (NYSE:MR) but similarly valued. We will take a look at Boston Omaha Corporation (NASDAQ:BOMN), TuanChe Limited (NASDAQ:TC), Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT), and Independence Holding Company (NYSE:IHC). All of these stocks’ market caps are similar to MR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BOMN | 5 | 261009 | 1 |
| TC | 1 | 283 | 1 |
| SBT | 7 | 28083 | -3 |
| IHC | 2 | 15360 | -1 |
| Average | 3.75 | 76184 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $53 million in MR’s case. Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT) is the most popular stock in this table. On the other hand TuanChe Limited (NASDAQ:TC) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Montage Resources Corporation (NYSE:MR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately MR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MR were disappointed as the stock returned -55.3% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
