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Did Hedge Funds Make The Right Call On Southwestern Energy Company (SWN) ?

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 Southwestern Energy Company (NYSE:SWN) and determine whether hedge funds skillfully traded this stock.

Southwestern Energy Company (NYSE:SWN) has experienced an increase in hedge fund sentiment lately. Our calculations also showed that SWN 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.

To the average investor there are tons of signals stock traders use to analyze their holdings. A couple of the less utilized signals are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the best fund managers can outclass their index-focused peers by a significant margin (see the details here).

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset 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 let’s view the recent hedge fund action regarding Southwestern Energy Company (NYSE:SWN).

What have hedge funds been doing with Southwestern Energy Company (NYSE:SWN)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in SWN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Southwestern Energy Company (NYSE:SWN) was held by Kopernik Global Investors, which reported holding $47 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $7.2 million position. Other investors bullish on the company included SIR Capital Management, Point72 Asset Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to Southwestern Energy Company (NYSE:SWN), around 10.01% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, designating 1.35 percent of its 13F equity portfolio to SWN.

Consequently, key hedge funds have jumped into Southwestern Energy Company (NYSE:SWN) headfirst. SIR Capital Management, managed by Vince Maddi and Shawn Brennan, initiated the biggest position in Southwestern Energy Company (NYSE:SWN). SIR Capital Management had $3.1 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $2.2 million position during the quarter. The following funds were also among the new SWN investors: Dmitry Balyasny’s Balyasny Asset Management, Jim O’Brien and Jonathan Dorfman’s Napier Park Global Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Southwestern Energy Company (NYSE:SWN) but similarly valued. These stocks are 3D Systems Corporation (NYSE:DDD), Nova Measuring Instruments Ltd. (NASDAQ:NVMI), Zuora, Inc. (NYSE:ZUO), and Scientific Games Corp (NASDAQ:SGMS). This group of stocks’ market caps match SWN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DDD 18 63617 -1
NVMI 10 157943 0
ZUO 23 102623 -3
SGMS 22 226145 -11
Average 18.25 137582 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $66 million in SWN’s case. Zuora, Inc. (NYSE:ZUO) is the most popular stock in this table. On the other hand Nova Measuring Instruments Ltd. (NASDAQ:NVMI) is the least popular one with only 10 bullish hedge fund positions. Southwestern Energy Company (NYSE:SWN) is not the least popular stock in this group but hedge fund interest is still below 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on SWN as the stock returned 44.4% since the end of March and outperformed the market by an even larger margin.

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