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Did Hedge Funds Make The Right Call On Brigham Minerals, Inc. (MNRL) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Brigham Minerals, Inc. (NYSE:MNRL) and determine whether hedge funds had an edge regarding this stock.

Brigham Minerals, Inc. (NYSE:MNRL) has experienced a decrease in hedge fund sentiment recently. MNRL was in 19 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with MNRL positions at the end of the previous quarter. Our calculations also showed that MNRL 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).

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

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind let’s take a look at the latest hedge fund action encompassing Brigham Minerals, Inc. (NYSE:MNRL).

What does smart money think about Brigham Minerals, Inc. (NYSE:MNRL)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MNRL over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Among these funds, Deep Basin Capital held the most valuable stake in Brigham Minerals, Inc. (NYSE:MNRL), which was worth $25.2 million at the end of the third quarter. On the second spot was Encompass Capital Advisors which amassed $10.4 million worth of shares. Millennium Management, Adage Capital Management, and Yaupon Capital 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 Deep Basin Capital allocated the biggest weight to Brigham Minerals, Inc. (NYSE:MNRL), around 6.38% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, setting aside 3.43 percent of its 13F equity portfolio to MNRL.

Seeing as Brigham Minerals, Inc. (NYSE:MNRL) has experienced a decline in interest from hedge fund managers, we can see that there were a few hedge funds that elected to cut their entire stakes by the end of the first quarter. Interestingly, Stuart J. Zimmer’s Zimmer Partners dumped the largest position of the “upper crust” of funds followed by Insider Monkey, totaling about $16.8 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dropped its stock, about $5.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Brigham Minerals, Inc. (NYSE:MNRL). We will take a look at Enova International Inc (NYSE:ENVA), Pacific Biosciences of California, Inc. (NASDAQ:PACB), Mesoblast Limited (NASDAQ:MESO), and Boingo Wireless Inc (NASDAQ:WIFI). All of these stocks’ market caps resemble MNRL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENVA 17 81510 -4
PACB 18 75493 -5
MESO 4 1302 3
WIFI 16 149530 4
Average 13.75 76959 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $54 million in MNRL’s case. Pacific Biosciences of California, Inc. (NASDAQ:PACB) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Brigham Minerals, Inc. (NYSE:MNRL) 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 MNRL as the stock returned 44.6% 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.