It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Hess Corporation (NYSE:HES) and compare its performance against hedge funds’ favorite stocks.
Is Hess Corporation (NYSE:HES) a safe stock to buy now? Prominent investors are taking an optimistic view. The number of long hedge fund positions advanced by 1 recently. Our calculations also showed that HES isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Singer of Elliott Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a peek at the new hedge fund action surrounding Hess Corporation (NYSE:HES).
What does smart money think about Hess Corporation (NYSE:HES)?
Heading into the fourth quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in HES a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Elliott Management was the largest shareholder of Hess Corporation (NYSE:HES), with a stake worth $405.2 million reported as of the end of September. Trailing Elliott Management was Fisher Asset Management, which amassed a stake valued at $143.1 million. Impala Asset Management, Empyrean Capital Partners, 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 Impala Asset Management allocated the biggest weight to Hess Corporation (NYSE:HES), around 7.94% of its 13F portfolio. Anchor Bolt Capital is also relatively very bullish on the stock, setting aside 4.51 percent of its 13F equity portfolio to HES.
As one would reasonably expect, key money managers were leading the bulls’ herd. D E Shaw, managed by David E. Shaw, established the most valuable call position in Hess Corporation (NYSE:HES). D E Shaw had $3.6 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also made a $0.6 million investment in the stock during the quarter. The other funds with brand new HES positions are Jonathan Berger’s Birch Grove Capital, Jonathan Dawson’s Southport Management, and Jonathan Berger’s Birch Grove Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Hess Corporation (NYSE:HES) but similarly valued. These stocks are Copart, Inc. (NASDAQ:CPRT), IAC/InterActiveCorp (NASDAQ:IAC), Arista Networks Inc (NYSE:ANET), and Keysight Technologies Inc (NYSE:KEYS). This group of stocks’ market caps are similar to HES’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPRT | 36 | 580287 | 6 |
| IAC | 51 | 2111302 | 4 |
| ANET | 20 | 178704 | -8 |
| KEYS | 45 | 999981 | 6 |
| Average | 38 | 967569 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $968 million. That figure was $922 million in HES’s case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Arista Networks Inc (NYSE:ANET) is the least popular one with only 20 bullish hedge fund positions. Hess Corporation (NYSE:HES) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on HES as the stock returned 67.9% in 2019 through December 23rd and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
