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Did Hedge Funds Make The Right Call On Halliburton Company (HAL) ?

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 Halliburton Company (NYSE:HAL) and determine whether hedge funds skillfully traded this stock.

Is Halliburton Company (NYSE:HAL) ready to rally soon? Prominent investors were buying. The number of bullish hedge fund bets inched up by 1 recently. Our calculations also showed that HAL 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.

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.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let’s view the fresh hedge fund action regarding Halliburton Company (NYSE:HAL).

How have hedgies been trading Halliburton Company (NYSE:HAL)?

At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. On the other hand, there were a total of 38 hedge funds with a bullish position in HAL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Halliburton Company (NYSE:HAL) was held by Pzena Investment Management, which reported holding $319.7 million worth of stock at the end of September. It was followed by Laurion Capital Management with a $41.9 million position. Other investors bullish on the company included Citadel Investment Group, Fisher Asset Management, and D E Shaw. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to Halliburton Company (NYSE:HAL), around 2.42% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, dishing out 1.62 percent of its 13F equity portfolio to HAL.

As aggregate interest increased, key hedge funds have jumped into Halliburton Company (NYSE:HAL) headfirst. Laurion Capital Management, managed by Benjamin A. Smith, initiated the most valuable position in Halliburton Company (NYSE:HAL). Laurion Capital Management had $41.9 million invested in the company at the end of the quarter. Todd J. Kantor’s Encompass Capital Advisors also initiated a $15.1 million position during the quarter. The other funds with brand new HAL positions are Renaissance Technologies, Greg Eisner’s Engineers Gate Manager, and David Costen Haley’s HBK Investments.

Let’s also examine hedge fund activity in other stocks similar to Halliburton Company (NYSE:HAL). We will take a look at Entegris Inc (NASDAQ:ENTG), Omega Healthcare Investors Inc (NYSE:OHI), 10x Genomics, Inc. (NASDAQ:TXG), and PulteGroup, Inc. (NYSE:PHM). This group of stocks’ market caps are similar to HAL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENTG 19 488063 -5
OHI 17 152576 -1
TXG 20 166530 8
PHM 36 465706 2
Average 23 318219 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $514 million in HAL’s case. PulteGroup, Inc. (NYSE:PHM) is the most popular stock in this table. On the other hand Omega Healthcare Investors Inc (NYSE:OHI) is the least popular one with only 17 bullish hedge fund positions. Halliburton Company (NYSE:HAL) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on HAL as the stock returned 90.2% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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