At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards QEP Resources Inc (NYSE:QEP) at the end of the second quarter and determine whether the smart money was really smart about this stock.
QEP Resources Inc (NYSE:QEP) investors should be aware of an increase in enthusiasm from smart money of late. QEP Resources Inc (NYSE:QEP) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 34. Our calculations also showed that QEP isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a peek at the key hedge fund action regarding QEP Resources Inc (NYSE:QEP).
What does smart money think about QEP Resources Inc (NYSE:QEP)?
At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards QEP over the last 20 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of QEP Resources Inc (NYSE:QEP), with a stake worth $7.1 million reported as of the end of September. Trailing Arrowstreet Capital was Adage Capital Management, which amassed a stake valued at $6.8 million. Millennium Management, Two Sigma Advisors, and Point72 Asset 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 Diametric Capital allocated the biggest weight to QEP Resources Inc (NYSE:QEP), around 0.05% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to QEP.
Now, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the largest position in QEP Resources Inc (NYSE:QEP). Point72 Asset Management had $2 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $1.7 million position during the quarter. The following funds were also among the new QEP investors: David Harding’s Winton Capital Management, Michael Gelband’s ExodusPoint Capital, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s go over hedge fund activity in other stocks similar to QEP Resources Inc (NYSE:QEP). These stocks are Orchid Island Capital, Inc. (NYSE:ORC), Seneca Foods Corp (NASDAQ:SENEA), Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), Tellurian Inc. (NASDAQ:TELL), Bonanza Creek Energy Inc (NYSE:BCEI), CRA International, Inc. (NASDAQ:CRAI), and Brightcove Inc (NASDAQ:BCOV). This group of stocks’ market values are closest to QEP’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.4 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $33 million in QEP’s case. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) is the most popular stock in this table. On the other hand Orchid Island Capital, Inc. (NYSE:ORC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks QEP Resources Inc (NYSE:QEP) is more popular among hedge funds. Our overall hedge fund sentiment score for QEP is 75.8. 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 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately QEP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on QEP were disappointed as the stock returned -30.2% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.