Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Parsley Energy Inc (NYSE:PE).
Parsley Energy Inc (NYSE:PE) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. PE was in 44 hedge funds’ portfolios at the end of the third quarter of 2019. There were 36 hedge funds in our database with PE holdings at the end of the previous quarter. Our calculations also showed that PE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Jonathan Barrett of Luminus Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s review the fresh hedge fund action encompassing Parsley Energy Inc (NYSE:PE).
Hedge fund activity in Parsley Energy Inc (NYSE:PE)
At the end of the third quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the second quarter of 2019. On the other hand, there were a total of 44 hedge funds with a bullish position in PE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in Parsley Energy Inc (NYSE:PE), which was worth $159.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $120.2 million worth of shares. Luminus Management, York Capital Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SIR Capital Management allocated the biggest weight to Parsley Energy Inc (NYSE:PE), around 6.96% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, setting aside 3.88 percent of its 13F equity portfolio to PE.
Consequently, some big names were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, initiated the most outsized position in Parsley Energy Inc (NYSE:PE). Alyeska Investment Group had $25.7 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $13.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners, David Rosen’s Rubric Capital Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s go over hedge fund activity in other stocks similar to Parsley Energy Inc (NYSE:PE). We will take a look at Trex Company, Inc. (NYSE:TREX), Williams-Sonoma, Inc. (NYSE:WSM), PG&E Corporation (NYSE:PCG), and NewMarket Corporation (NYSE:NEU). This group of stocks’ market values are similar to PE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TREX | 18 | 104493 | -1 |
| WSM | 24 | 287642 | -3 |
| PCG | 64 | 2847473 | -3 |
| NEU | 27 | 193660 | 7 |
| Average | 33.25 | 858317 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $858 million. That figure was $779 million in PE’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Trex Company, Inc. (NYSE:TREX) is the least popular one with only 18 bullish hedge fund positions. Parsley Energy Inc (NYSE:PE) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately PE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PE were disappointed as the stock returned 16.7% in 2019 (through December 23rd) 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 this year.
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.
