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Oil Price Hiccup Is Wreaking Havoc With Energy XXI Ltd (EXXI), Has It Finally Hit Bottom?

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Energy XXI Ltd (NASDAQ:EXXI)‘s shares continued to slump in trading today, down by another 7.36%, adding to the 7.23% dip suffered in Thursday’s trading. The $206.81 million oil and natural gas exploration and production company recently announced the sale of its East Bay field in the Gulf of Mexico to a private buyer for $21 million, which along with the recent dip in oil prices along with its rising rig count and worries of overproduction, has pulled down the stock. So far this year, Energy XXI Ltd (NASDAQ:EXXI)’s stock has cratered by more than 32% while the industry has shown slight gains of 2.45%. Currently the stock is trading just 3.5% above its 52-week low and a ghastly 90.45% below its 52-week high. Nor does the smart money appear to see any light at the end of the dark tunnel Energy XXI is stuck in, as they have been cutting their stakes despite the downward-spiraling shares potentially making the stock more attractive.


First a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers are dumber than a bucket of rocks when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy, which identifies the best small-cap stock picks of the best hedge fund managers returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too). What’s the reason for this discrepancy you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 144% since the launch of our small-cap strategy compared to less than 60% for the S&P 500 (see the details).

Prefessional money managers have been greatly cutting their exposure to Energy XXI Ltd (NASDAQ:EXXI). Among the funds that we track a total of 19 firms had holdings of about $55.39 million on March 31 compared to 30 funds with $65.28 million in shares at the end of the previous quarter. Mark McGoldrick and Jason Maynard’s Mount Kellett Capital Management and Joe Huber‘s Huber Capital Management are the largest stockholders of Energy XXI Ltd (NASDAQ:EXXI) among those current shareholders, with respective holdings of 5.92 million shares valued at $21.56 million and 3.04 million shares valued at $11.07 million. The firms that liquidated their entire stakes during the quarter included veteran investor Leon Cooperman‘s Omega Advisors and Jim Simons‘ Renaissance Technologies.

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