Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Laredo Petroleum Inc (NYSE:LPI) to find out whether it was one of their high conviction long-term ideas.
Laredo Petroleum Inc (NYSE:LPI) was in 18 hedge funds’ portfolios at the end of the first quarter of 2019. LPI investors should pay attention to an increase in hedge fund sentiment in recent months. There were 14 hedge funds in our database with LPI positions at the end of the previous quarter. Our calculations also showed that LPI 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.
Paul Marshall of Marshall Wace
We’re going to take a look at the recent hedge fund action regarding Laredo Petroleum Inc (NYSE:LPI).
What does the smart money think about Laredo Petroleum Inc (NYSE:LPI)?
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in LPI a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, MacKenzie B. Davis and Kenneth L. Settles Jr’s SailingStone Capital Partners has the most valuable position in Laredo Petroleum Inc (NYSE:LPI), worth close to $115.7 million, amounting to 7.6% of its total 13F portfolio. The second largest stake is held by Millennium Management, led by Israel Englander, holding a $14 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers that are bullish consist of Jim Simons’s Renaissance Technologies, Gilchrist Berg’s Water Street Capital and Jonathan Barrett and Paul Segal’s Luminus Management.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Luminus Management, managed by Jonathan Barrett and Paul Segal, assembled the most valuable position in Laredo Petroleum Inc (NYSE:LPI). Luminus Management had $8.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $3.3 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Sara Nainzadeh’s Centenus Global Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s check out hedge fund activity in other stocks similar to Laredo Petroleum Inc (NYSE:LPI). These stocks are Winmark Corporation (NASDAQ:WINA), Covia Holdings Corporation (NYSE:CVIA), Capstead Mortgage Corporation (NYSE:CMO), and Great Southern Bancorp, Inc. (NASDAQ:GSBC). All of these stocks’ market caps resemble LPI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WINA | 7 | 101640 | -1 |
| CVIA | 5 | 61568 | 0 |
| CMO | 8 | 25570 | -3 |
| GSBC | 12 | 24448 | 4 |
| Average | 8 | 53307 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $187 million in LPI’s case. Great Southern Bancorp, Inc. (NASDAQ:GSBC) is the most popular stock in this table. On the other hand Covia Holdings Corporation (NYSE:CVIA) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Laredo Petroleum Inc (NYSE:LPI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LPI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LPI were disappointed as the stock returned -12.9% 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.
