Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 30 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 6.7% through November 15th whereas the S&P 500 Index ETF gained only 2.6% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Halliburton Company (NYSE:HAL) from the perspective of those elite funds.
Is Halliburton Company (NYSE:HAL) the right investment to pursue these days? Money managers are reducing their bets on the stock. The number of long hedge fund positions were trimmed by 5 in recent months. Our calculations also showed that HAL isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Cliff Asness of AQR Capital Management
We’re going to take a look at the key hedge fund action surrounding Halliburton Company (NYSE:HAL).
How have hedgies been trading Halliburton Company (NYSE:HAL)?
At Q3’s end, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards HAL over the last 13 quarters. 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, Pzena Investment Management was the largest shareholder of Halliburton Company (NYSE:HAL), with a stake worth $170.5 million reported as of the end of September. Trailing Pzena Investment Management was Two Sigma Advisors, which amassed a stake valued at $135.1 million. D E Shaw, Millennium Management, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Halliburton Company (NYSE:HAL) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few funds who sold off their positions entirely heading into Q3. Intriguingly, Todd J. Kantor’s Encompass Capital Advisors cut the biggest position of all the hedgies monitored by Insider Monkey, worth about $161.3 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dropped its stock, about $80.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 5 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks similar to Halliburton Company (NYSE:HAL). These stocks are Manulife Financial Corporation (NYSE:MFC), Nutrien Ltd. (NYSE:NTR), National Grid plc (NYSE:NGG), and Public Storage (NYSE:PSA). This group of stocks’ market values are closest to HAL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MFC | 21 | 389083 | 5 |
| NTR | 35 | 818245 | 8 |
| NGG | 11 | 237302 | -2 |
| PSA | 15 | 679829 | -2 |
| Average | 20.5 | 531115 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $531 million. That figure was $790 million in HAL’s case. Nutrien Ltd. (NYSE:NTR) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Halliburton Company (NYSE:HAL) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
