Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Pampa Energia S.A. (NYSE:PAM) is a good investment right now.
Hedge fund interest in Pampa Energia S.A. (NYSE:PAM) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as RPC, Inc. (NYSE:RES), GreenTree Hospitality Group Ltd. (NYSE:GHG), and MRC Global Inc (NYSE:MRC) to gather more data points. Our calculations also showed that PAM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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’ 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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
Howard Marks of Oaktree Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the new hedge fund action surrounding Pampa Energia S.A. (NYSE:PAM).
What does smart money think about Pampa Energia S.A. (NYSE:PAM)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in PAM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Pampa Energia S.A. (NYSE:PAM) was held by OZ Management, which reported holding $31 million worth of stock at the end of September. It was followed by Point State Capital with a $27.9 million position. Other investors bullish on the company included Oaktree Capital Management, Millennium Management, and Highland Capital Management. In terms of the portfolio weights assigned to each position Point State Capital allocated the biggest weight to Pampa Energia S.A. (NYSE:PAM), around 0.51% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, designating 0.33 percent of its 13F equity portfolio to PAM.
Since Pampa Energia S.A. (NYSE:PAM) has faced falling interest from hedge fund managers, logic holds that there were a few money managers that slashed their entire stakes by the end of the third quarter. Interestingly, Bruce J. Richards and Louis Hanover’s Marathon Asset Management sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $2.6 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also cut its stock, about $0.4 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Pampa Energia S.A. (NYSE:PAM). These stocks are RPC, Inc. (NYSE:RES), GreenTree Hospitality Group Ltd. (NYSE:GHG), MRC Global Inc (NYSE:MRC), and Big Lots, Inc. (NYSE:BIG). All of these stocks’ market caps are closest to PAM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RES | 13 | 47446 | 1 |
| GHG | 8 | 32391 | 0 |
| MRC | 20 | 72308 | 4 |
| BIG | 24 | 152050 | 2 |
| Average | 16.25 | 76049 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $90 million in PAM’s case. Big Lots, Inc. (NYSE:BIG) is the most popular stock in this table. On the other hand GreenTree Hospitality Group Ltd. (NYSE:GHG) is the least popular one with only 8 bullish hedge fund positions. Pampa Energia S.A. (NYSE:PAM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately PAM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PAM investors were disappointed as the stock returned -42.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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.
