Did Hedge Funds Drop The Ball On Oil States International, Inc. (OIS) ?

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Oil States International, Inc. (NYSE:OIS).

Oil States International, Inc. (NYSE:OIS) was in 10 hedge funds’ portfolios at the end of December. OIS has experienced a decrease in hedge fund interest recently. There were 11 hedge funds in our database with OIS holdings at the end of the previous quarter. Our calculations also showed that ois isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

D. E. Shaw

Let’s review the key hedge fund action surrounding Oil States International, Inc. (NYSE:OIS).

How have hedgies been trading Oil States International, Inc. (NYSE:OIS)?

Heading into the first quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the second quarter of 2018. On the other hand, there were a total of 9 hedge funds with a bullish position in OIS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with OIS Positions

Among these funds, Renaissance Technologies held the most valuable stake in Oil States International, Inc. (NYSE:OIS), which was worth $6.2 million at the end of the fourth quarter. On the second spot was Royce & Associates which amassed $5.1 million worth of shares. Moreover, D E Shaw, Arrowgrass Capital Partners, and Citadel Investment Group were also bullish on Oil States International, Inc. (NYSE:OIS), allocating a large percentage of their portfolios to this stock.

Seeing as Oil States International, Inc. (NYSE:OIS) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of funds that elected to cut their entire stakes heading into Q3. Intriguingly, Steve Cohen’s Point72 Asset Management dropped the biggest position of the 700 funds tracked by Insider Monkey, worth an estimated $3.3 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $0.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Oil States International, Inc. (NYSE:OIS). We will take a look at Keane Group, Inc. (NYSE:FRAC), Trupanion Inc (NASDAQ:TRUP), COMSCORE, Inc. (NASDAQ:SCOR), and Gran Tierra Energy Inc. (NYSE:GTE). This group of stocks’ market caps match OIS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FRAC 26 441615 8
TRUP 10 130837 1
SCOR 12 190216 -1
GTE 16 249835 0
Average 16 253126 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $253 million. That figure was $22 million in OIS’s case. Keane Group, Inc. (NYSE:FRAC) is the most popular stock in this table. On the other hand Trupanion Inc (NASDAQ:TRUP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Oil States International, Inc. (NYSE:OIS) is even less popular than TRUP. Hedge funds clearly dropped the ball on OIS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on OIS as the stock returned 32.6% and outperformed the market by an even larger margin.

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