We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards HighPoint Resources Corporation (NYSE:HPR) and determine whether hedge funds skillfully traded this stock.
HighPoint Resources Corporation (NYSE:HPR) was in 10 hedge funds’ portfolios at the end of March. HPR has seen a decrease in activity from the world’s largest hedge funds recently. There were 13 hedge funds in our database with HPR holdings at the end of the previous quarter. Our calculations also showed that HPR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Roger Ibbotson of Zebra Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the fresh hedge fund action surrounding HighPoint Resources Corporation (NYSE:HPR).
Hedge fund activity in HighPoint Resources Corporation (NYSE:HPR)
At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HPR over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in HighPoint Resources Corporation (NYSE:HPR), which was worth $1.7 million at the end of the third quarter. On the second spot was Divisar Capital which amassed $1.3 million worth of shares. Huber Capital Management, D E Shaw, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to HighPoint Resources Corporation (NYSE:HPR), around 0.52% of its 13F portfolio. GRT Capital Partners is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to HPR.
Seeing as HighPoint Resources Corporation (NYSE:HPR) has faced declining sentiment from the smart money, we can see that there exists a select few money managers that slashed their entire stakes last quarter. Interestingly, Donald Sussman’s Paloma Partners dropped the largest investment of the 750 funds followed by Insider Monkey, valued at an estimated $0.2 million in stock. Roger Ibbotson’s fund, Zebra Capital Management, also cut its stock, about $0.1 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HighPoint Resources Corporation (NYSE:HPR) but similarly valued. We will take a look at Frontier Communications Corporation (NASDAQ:FTR), RiceBran Technologies (NASDAQ:RIBT), Elmira Savings Bank (NASDAQ:ESBK), and Microbot Medical Inc. (NASDAQ:MBOT). All of these stocks’ market caps resemble HPR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FTR | 8 | 3101 | 2 |
| RIBT | 5 | 3378 | -1 |
| ESBK | 1 | 157 | 0 |
| MBOT | 2 | 741 | 0 |
| Average | 4 | 1844 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $4 million in HPR’s case. Frontier Communications Corporation (NASDAQ:FTR) is the most popular stock in this table. On the other hand Elmira Savings Bank (NASDAQ:ESBK) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks HighPoint Resources Corporation (NYSE:HPR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on HPR as the stock returned 57.9% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
