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Did Hedge Funds Drop The Ball On Devon Energy Corp (DVN) ?

Is Devon Energy Corp (NYSE:DVN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Devon Energy Corp (NYSE:DVN) ready to rally soon? Investors who are in the know are becoming less confident. The number of long hedge fund positions were cut by 5 lately. Our calculations also showed that DVN isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Paul Singer ELLIOTT MANAGEMENT

We’re going to take a gander at the latest hedge fund action surrounding Devon Energy Corp (NYSE:DVN).

How have hedgies been trading Devon Energy Corp (NYSE:DVN)?

Heading into the first quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. By comparison, 39 hedge funds held shares or bullish call options in DVN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

DVN_mar2019

The largest stake in Devon Energy Corp (NYSE:DVN) was held by Elliott Management, which reported holding $376.4 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $204.9 million position. Other investors bullish on the company included Citadel Investment Group, Point72 Asset Management, and Renaissance Technologies.

Because Devon Energy Corp (NYSE:DVN) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there is a sect of funds who sold off their full holdings by the end of the third quarter. Intriguingly, George Soros’s Soros Fund Management dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, worth about $49.9 million in stock. Larry Foley and Paul Farrell’s fund, Bronson Point Partners, also dumped its stock, about $11 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Devon Energy Corp (NYSE:DVN) but similarly valued. We will take a look at TransUnion (NYSE:TRU), W.P. Carey Inc. (NYSE:WPC), Invitation Homes Inc. (NYSE:INVH), and InterContinental Hotels Group PLC (NYSE:IHG). This group of stocks’ market values match DVN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRU 28 1373120 -1
WPC 10 49394 0
INVH 16 265244 1
IHG 7 18322 4
Average 15.25 426520 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $1169 million in DVN’s case. TransUnion (NYSE:TRU) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Devon Energy Corp (NYSE:DVN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on DVN as the stock returned 31.8% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

Disclosure: None. This article was originally published at Insider Monkey.

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