Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Apache Corporation (NYSE:APA).
Apache Corporation (NYSE:APA) was in 22 hedge funds’ portfolios at the end of the second quarter of 2019. APA has seen a decrease in hedge fund interest in recent months. There were 28 hedge funds in our database with APA holdings at the end of the previous quarter. Our calculations also showed that APA isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the new hedge fund action encompassing Apache Corporation (NYSE:APA).
What does smart money think about Apache Corporation (NYSE:APA)?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards APA over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Apache Corporation (NYSE:APA) was held by Orbis Investment Management, which reported holding $379.9 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $72.9 million position. Other investors bullish on the company included Citadel Investment Group, Holocene Advisors, and Encompass Capital Advisors.
Since Apache Corporation (NYSE:APA) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that decided to sell off their entire stakes in the second quarter. Intriguingly, Sara Nainzadeh’s Centenus Global Management said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, totaling an estimated $5 million in stock. Karim Abbadi and Edward McBride’s fund, Centiva Capital, also cut its stock, about $1.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Apache Corporation (NYSE:APA) but similarly valued. These stocks are Camden Property Trust (NYSE:CPT), AXA Equitable Holdings, Inc. (NYSE:EQH), Dropbox, Inc. (NASDAQ:DBX), and AEGON N.V. (NYSE:AEG). This group of stocks’ market caps match APA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPT | 19 | 316129 | -5 |
| EQH | 32 | 1112788 | -3 |
| DBX | 43 | 918956 | 10 |
| AEG | 9 | 36666 | -1 |
| Average | 25.75 | 596135 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $596 million. That figure was $615 million in APA’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand AEGON N.V. (NYSE:AEG) is the least popular one with only 9 bullish hedge fund positions. Apache Corporation (NYSE:APA) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately APA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); APA investors were disappointed as the stock returned -10.7% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
