It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards U.S. Well Services, Inc. (NASDAQ:USWS) during the quarter below.
U.S. Well Services, Inc. (NASDAQ:USWS) was in 14 hedge funds’ portfolios at the end of December. USWS has experienced a decrease in enthusiasm from smart money recently. There were 15 hedge funds in our database with USWS positions at the end of the previous quarter. Our calculations also showed that USWS isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a gander at the new hedge fund action encompassing U.S. Well Services, Inc. (NASDAQ:USWS).
How are hedge funds trading U.S. Well Services, Inc. (NASDAQ:USWS)?
At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in USWS a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Encompass Capital Advisors was the largest shareholder of U.S. Well Services, Inc. (NASDAQ:USWS), with a stake worth $11.3 million reported as of the end of December. Trailing Encompass Capital Advisors was Alyeska Investment Group, which amassed a stake valued at $8.1 million. Scoggin, Angelo Gordon & Co, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: 999. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Encompass Capital Advisors).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as U.S. Well Services, Inc. (NASDAQ:USWS) but similarly valued. These stocks are Unifi, Inc. (NYSE:UFI), Axonics Modulation Technologies, Inc. (NASDAQ:AXNX), Pennsylvania Real Estate Investment Trust (NYSE:PEI), and eXp World Holdings, Inc. (NASDAQ:EXPI). This group of stocks’ market values match USWS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UFI | 10 | 80864 | -4 |
| AXNX | 10 | 66177 | 10 |
| PEI | 15 | 37056 | 1 |
| EXPI | 7 | 2092 | 2 |
| Average | 10.5 | 46547 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $32 million in USWS’s case. Pennsylvania Real Estate Investment Trust (NYSE:PEI) is the most popular stock in this table. On the other hand eXp World Holdings, Inc. (NASDAQ:EXPI) is the least popular one with only 7 bullish hedge fund positions. U.S. Well Services, Inc. (NASDAQ:USWS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on USWS, though not to the same extent, as the stock returned 20% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.