Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Denbury Resources Inc. (NYSE:DNR) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. DNR was in 18 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with DNR positions at the end of the previous quarter. 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 Apogee Enterprises, Inc. (NASDAQ:APOG), Portola Pharmaceuticals Inc (NASDAQ:PTLA), and TransAlta Corporation (USA) (NYSE:TAC) to gather more data points.
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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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Keeping this in mind, we’re going to take a gander at the new action surrounding Denbury Resources Inc. (NYSE:DNR).
Hedge fund activity in Denbury Resources Inc. (NYSE:DNR)
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the second quarter of 2016. By comparison, 17 hedge funds held shares or bullish call options in DNR heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Cliff Asness’ AQR Capital Management has the largest position in Denbury Resources Inc. (NYSE:DNR), worth close to $14.5 million, amounting to less than 0.1% of its total 13F portfolio. The second largest stake is held by Elm Ridge Capital, led by Ron Gutfleish, which disclosed a $10.3 million position; 2.4% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism encompass D. E. Shaw’s D E Shaw, Israel Englander’s Millennium Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP. We should note that Elm Ridge Capital is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually sold off their positions entirely. Intriguingly, Andy Redleaf’s Whitebox Advisors sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising about $4.2 million in stock. Jacob Gottlieb’s fund, Visium Asset Management, also sold off its stock, valued at about $2.7 million.
Let’s go over hedge fund activity in other stocks similar to Denbury Resources Inc. (NYSE:DNR). These stocks are Apogee Enterprises, Inc. (NASDAQ:APOG), Portola Pharmaceuticals Inc (NASDAQ:PTLA), TransAlta Corporation (USA) (NYSE:TAC), and Spartan Stores, Inc. (NASDAQ:SPTN). This group of stocks’ market caps are similar to DNR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APOG | 14 | 71670 | 1 |
| PTLA | 15 | 236123 | -2 |
| TAC | 7 | 32380 | -1 |
| SPTN | 18 | 55934 | 2 |
As you can see these stocks had an average of 14 funds with bullish positions and the average amount invested in these stocks was $99 million, compared to $66 million in DNR’s case. Spartan Stores, Inc. (NASDAQ:SPTN) is the most popular stock in this table. On the other hand TransAlta Corporation (USA) (NYSE:TAC) is the least popular one with only seven funds holding long positions. Denbury Resources Inc. (NYSE:DNR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Spartan Stores, Inc. (NASDAQ:SPTN) might be a better candidate to consider taking a long position in.
Disclosure: none
