Hedge Funds Are Betting On SM Energy Company (SM)

In this article we are going to use hedge fund sentiment as a tool and determine whether SM Energy Company (NYSE:SM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

SM Energy Company (NYSE:SM) has seen an increase in enthusiasm from smart money in recent months. SM Energy Company (NYSE:SM) was in 25 hedge funds’ portfolios at the end of June. The all time high for this statistic is 32. There were 16 hedge funds in our database with SM holdings at the end of March. Our calculations also showed that SM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

To the average investor there are plenty of methods stock traders put to use to appraise publicly traded companies. A duo of the most useful methods are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the best investment managers can outclass the S&P 500 by a healthy margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Richard Driehaus of Driehaus Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now we’re going to view the new hedge fund action encompassing SM Energy Company (NYSE:SM).

Do Hedge Funds Think SM Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 56% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SM over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, D E Shaw was the largest shareholder of SM Energy Company (NYSE:SM), with a stake worth $56.4 million reported as of the end of June. Trailing D E Shaw was Maple Rock Capital, which amassed a stake valued at $40.7 million. Two Sigma Advisors, Slate Path Capital, and Millennium Management 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 Maple Rock Capital allocated the biggest weight to SM Energy Company (NYSE:SM), around 6.12% of its 13F portfolio. Hill City Capital is also relatively very bullish on the stock, designating 2.99 percent of its 13F equity portfolio to SM.

As one would reasonably expect, key hedge funds have been driving this bullishness. SIR Capital Management, managed by Vince Maddi and Shawn Brennan, established the most valuable position in SM Energy Company (NYSE:SM). SIR Capital Management had $12.8 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $9.7 million position during the quarter. The other funds with brand new SM positions are Phill Gross and Robert Atchinson’s Adage Capital Management, Marc Lasry’s Avenue Capital, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as SM Energy Company (NYSE:SM) but similarly valued. These stocks are Himax Technologies, Inc. (NASDAQ:HIMX), Intercorp Financial Services Inc. (NYSE:IFS), Nelnet, Inc. (NYSE:NNI), InnovAge Holding Corp. (NASDAQ:INNV), Sorrento Therapeutics Inc (NASDAQ:SRNE), Noah Holdings Limited (NYSE:NOAH), and Albany International Corp. (NYSE:AIN). All of these stocks’ market caps resemble SM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HIMX 16 301419 -2
IFS 4 31384 -1
NNI 14 201559 3
INNV 18 115683 -14
SRNE 10 39348 -4
NOAH 17 550262 5
AIN 12 16532 0
Average 13 179455 -1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $260 million in SM’s case. InnovAge Holding Corp. (NASDAQ:INNV) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks SM Energy Company (NYSE:SM) is more popular among hedge funds. Our overall hedge fund sentiment score for SM is 83.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 24% in 2021 through October 22nd but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on SM as the stock returned 25.1% since the end of June (through 10/22) 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.