Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Viper Energy Partners LP (NASDAQ:VNOM)? The smart money sentiment can provide an answer to this question.
Viper Energy Partners LP (NASDAQ:VNOM) was in 14 hedge funds’ portfolios at the end of September. VNOM has experienced an increase in hedge fund interest recently. There were 13 hedge funds in our database with VNOM holdings at the end of the previous quarter. Our calculations also showed that VNOM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
George Soros of Soros Fund Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the recent hedge fund action regarding Viper Energy Partners LP (NASDAQ:VNOM).
How have hedgies been trading Viper Energy Partners LP (NASDAQ:VNOM)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in VNOM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cardinal Capital, managed by Amy Minella, holds the biggest position in Viper Energy Partners LP (NASDAQ:VNOM). Cardinal Capital has a $46.6 million position in the stock, comprising 1.5% of its 13F portfolio. The second largest stake is held by Millennium Management, managed by Israel Englander, which holds a $18 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish encompass George Soros’s Soros Fund Management, Anand Parekh’s Alyeska Investment Group and Charles Davidson and Joseph Jacobs’s Wexford Capital. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to Viper Energy Partners LP (NASDAQ:VNOM), around 1.54% of its 13F portfolio. Wexford Capital is also relatively very bullish on the stock, designating 1.5 percent of its 13F equity portfolio to VNOM.
As one would reasonably expect, key money managers were breaking ground themselves. Wexford Capital, managed by Charles Davidson and Joseph Jacobs, assembled the largest position in Viper Energy Partners LP (NASDAQ:VNOM). Wexford Capital had $10.7 million invested in the company at the end of the quarter. Vince Maddi and Shawn Brennan’s SIR Capital Management also initiated a $3.1 million position during the quarter. The only other fund with a new position in the stock is Robert Polak’s Anchor Bolt Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Viper Energy Partners LP (NASDAQ:VNOM) but similarly valued. These stocks are nVent Electric plc (NYSE:NVT), Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), Spark Therapeutics Inc (NASDAQ:ONCE), and Q2 Holdings Inc (NYSE:QTWO). This group of stocks’ market valuations match VNOM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVT | 21 | 564545 | -7 |
| OLLI | 22 | 98695 | -9 |
| ONCE | 36 | 1272087 | -3 |
| QTWO | 16 | 153545 | -5 |
| Average | 23.75 | 522218 | -6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $522 million. That figure was $131 million in VNOM’s case. Spark Therapeutics Inc (NASDAQ:ONCE) is the most popular stock in this table. On the other hand Q2 Holdings Inc (NYSE:QTWO) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Viper Energy Partners LP (NASDAQ:VNOM) is even less popular than QTWO. Hedge funds dodged a bullet by taking a bearish stance towards VNOM. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately VNOM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VNOM investors were disappointed as the stock returned -12.7% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
