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Did Hedge Funds Drop The Ball On Vermilion Energy Inc (VET) ?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Vermilion Energy Inc (NYSE:VET) investors should be aware of a decrease in hedge fund interest in recent months. VET was in 7 hedge funds’ portfolios at the end of December. There were 9 hedge funds in our database with VET positions at the end of the previous quarter. Our calculations also showed that VET isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Let’s go over the fresh hedge fund action surrounding Vermilion Energy Inc (NYSE:VET).

How are hedge funds trading Vermilion Energy Inc (NYSE:VET)?

Heading into the first quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in VET a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

No of Hedge Funds With VET Positions

More specifically, Encompass Capital Advisors was the largest shareholder of Vermilion Energy Inc (NYSE:VET), with a stake worth $21.8 million reported as of the end of September. Trailing Encompass Capital Advisors was Two Sigma Advisors, which amassed a stake valued at $7.2 million. Renaissance Technologies, SIR Capital Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Vermilion Energy Inc (NYSE:VET) has witnessed declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of hedgies who sold off their full holdings last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest position of the “upper crust” of funds watched by Insider Monkey, comprising close to $0.3 million in stock. George Zweig, Shane Haas and Ravi Chander’s fund, Signition LP, also dumped its stock, about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Vermilion Energy Inc (NYSE:VET). We will take a look at AutoNation, Inc. (NYSE:AN), United Bankshares, Inc. (NASDAQ:UBSI), ACI Worldwide Inc (NASDAQ:ACIW), and CoreSite Realty Corp (NYSE:COR). All of these stocks’ market caps are closest to VET’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AN 22 428351 -2
UBSI 10 27685 3
ACIW 21 272938 6
COR 15 181186 3
Average 17 227540 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $228 million. That figure was $41 million in VET’s case. AutoNation, Inc. (NYSE:AN) is the most popular stock in this table. On the other hand United Bankshares, Inc. (NASDAQ:UBSI) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Vermilion Energy Inc (NYSE:VET) is even less popular than UBSI. Hedge funds clearly dropped the ball on VET 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 VET as the stock returned 33.2% and outperformed the market by an even larger margin.

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

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