After a strong sell-off at the end of the last week, U.S. stocks are having a breather at the moment, trading sideways for most of the day. Although there seems to be a mostly positive mood in the market, several stocks have dipped in the red. Let’s find out why investors are pushing Rex Energy Corporation (NASDAQ:REXX), Seadrill Partners LLC (NYSE:SDLP), SolarCity Corp (NASDAQ:SCTY), Southwestern Energy Company (NYSE:SWN) and Frontier Communications Corp (NASDAQ:FTR) lower today.
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with the knowledge and resources of Visium can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 53 percentage points and returning over 102%, while hedge funds themselves have collectively underperformed the market (read the details here).
Rex Energy Corporation (NASDAQ:REXX) plunged this morning, after the stock was downgraded by analysts at KeyBanc Capital Markets. The firm has reduced its rating to ‘Sector Weight’ from ‘Overweight’. KeyBanc left the price target untouched at $3.5 per share. Rex’s shares are currently trading at $1.10 apiece, down by more than 5% from yesterday’s closing price.
Hedge funds are not keen on Rex Energy Corporation (NASDAQ:REXX), with only five funds from our database reporting a position in the stock at the end of the third quarter, down from seven at the end of June. David E. Shaw’s D E Shaw holds the largest stake in the company among the funds we follow, having reported ownership of 635,775 shares, up by 24% over the quarter.
Shares of Seadrill Partners LLC (NYSE:SDLP) are also down by 5%, after the company announced its intention to cut its quarterly distribution by 56% to $0.25 per share. The main reason for this reduction is the continuous weakness in the offshore drilling business. The low oil prices are not helping either. Seadrill Partners will, instead, focus on repaying some of its debt, improving liquidity and saving up for maintenance and replacement works.
At the end of September, less than 1% of Seadrill Partners LLC (NYSE:SDLP)’s common stock was held by six funds, unchanged over the quarter. In its latest 13F filing, Israel Englander‘s Millennium Management reported a 150% increase in its holding of the stock to 101,571 shares valued at $955,000.