Did Hedge Funds Make The Right Call On Amplify Energy Corp. (AMPY) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Amplify Energy Corp. (NYSE:AMPY) and determine whether hedge funds skillfully traded this stock.

Is Amplify Energy Corp. (NYSE:AMPY) a buy here? Money managers were getting less optimistic. The number of bullish hedge fund positions dropped by 3 in recent months. Our calculations also showed that AMPY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). AMPY was in 17 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with AMPY holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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.


Howard Marks of Oaktree Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to review the fresh hedge fund action encompassing Amplify Energy Corp. (NYSE:AMPY).

How are hedge funds trading Amplify Energy Corp. (NYSE:AMPY)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the fourth quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in AMPY a year ago. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Fir Tree, managed by Jeffrey Tannenbaum, holds the biggest position in Amplify Energy Corp. (NYSE:AMPY). Fir Tree has a $5.9 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Don Morgan of Brigade Capital, with a $2.3 million position; 0.1% of its 13F portfolio is allocated to the company. Some other peers that are bullish contain Marc Lasry’s Avenue Capital, Renaissance Technologies and Howard Marks’s Oaktree Capital Management. In terms of the portfolio weights assigned to each position Avenue Capital allocated the biggest weight to Amplify Energy Corp. (NYSE:AMPY), around 1.19% of its 13F portfolio. Fir Tree is also relatively very bullish on the stock, earmarking 0.52 percent of its 13F equity portfolio to AMPY.

Judging by the fact that Amplify Energy Corp. (NYSE:AMPY) has experienced falling interest from the aggregate hedge fund industry, logic holds that there is a sect of hedgies that decided to sell off their positions entirely by the end of the first quarter. It’s worth mentioning that David Rosen’s Rubric Capital Management cut the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising about $5.8 million in stock. Frederick DiSanto’s fund, Ancora Advisors, also dumped its stock, about $1.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Amplify Energy Corp. (NYSE:AMPY). These stocks are Youngevity International, Inc. (NASDAQ:YGYI), voxeljet AG (NYSE:VJET), DarioHealth Corp. (NASDAQ:DRIO), and General Moly, Inc. (NYSE:GMO). This group of stocks’ market values are closest to AMPY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YGYI 1 11 0
VJET 1 83 0
DRIO 1 1454 0
GMO 3 21 1
Average 1.5 392 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.5 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $11 million in AMPY’s case. General Moly, Inc. (NYSE:GMO) is the most popular stock in this table. On the other hand Youngevity International, Inc. (NASDAQ:YGYI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Amplify Energy Corp. (NYSE:AMPY) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on AMPY as the stock returned 157.9% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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