We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Halcon Resources Corp (NYSE:HK).
Halcon Resources Corp (NYSE:HK) investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that HK 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’ 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.
Let’s take a gander at the recent hedge fund action regarding Halcon Resources Corp (NYSE:HK).
What does smart money think about Halcon Resources Corp (NYSE:HK)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HK over the last 15 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Oaktree Capital Management was the largest shareholder of Halcon Resources Corp (NYSE:HK), with a stake worth $15.5 million reported as of the end of March. Trailing Oaktree Capital Management was Fir Tree, which amassed a stake valued at $11.3 million. Luminus Management, Brigade Capital, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Since Halcon Resources Corp (NYSE:HK) has witnessed falling interest from hedge fund managers, logic holds that there lies a certain “tier” of hedgies that elected to cut their full holdings last quarter. Intriguingly, Brett Hendrickson’s Nokomis Capital dumped the largest position of the 700 funds monitored by Insider Monkey, totaling close to $4.3 million in stock, and Bernard Selz’s Selz Capital was right behind this move, as the fund sold off about $2.7 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 8 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Halcon Resources Corp (NYSE:HK) but similarly valued. These stocks are Bridgford Foods Corporation (NASDAQ:BRID), Apyx Medical Corporation (NASDAQ:APYX), Advanced Emissions Solutions, Inc. (NASDAQ:ADES), and Independence Contract Drilling Inc (NYSE:ICD). This group of stocks’ market caps match HK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BRID | 1 | 378 | 1 |
| APYX | 13 | 28136 | 4 |
| ADES | 6 | 36808 | 0 |
| ICD | 13 | 95880 | 1 |
| Average | 8.25 | 40301 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $69 million in HK’s case. Apyx Medical Corporation (NASDAQ:APYX) is the most popular stock in this table. On the other hand Bridgford Foods Corporation (NASDAQ:BRID) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Halcon Resources Corp (NYSE:HK) 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 HK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HK were disappointed as the stock returned -87.4% 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.
