Hedge Funds Are Dumping Chesapeake Energy Corporation (CHK)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Chesapeake Energy Corporation (NYSE:CHK).

Chesapeake Energy Corporation (NYSE:CHK) was in 15 hedge funds’ portfolios at the end of the first quarter of 2020. CHK shareholders have witnessed a decrease in hedge fund interest in recent months. There were 19 hedge funds in our database with CHK holdings at the end of the previous quarter. Our calculations also showed that CHK 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.

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.

Michael Hintze CQS Cayman

Michael Hintze of CQS Cayman LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the fresh hedge fund action regarding Chesapeake Energy Corporation (NYSE:CHK).

How are hedge funds trading Chesapeake Energy Corporation (NYSE:CHK)?

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CHK over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Chesapeake Energy Corporation (NYSE:CHK) was held by Jasper Ridge Partners, which reported holding $5.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $4.6 million position. Other investors bullish on the company included Arrowstreet Capital, Ellington, and Winton Capital Management. In terms of the portfolio weights assigned to each position Jasper Ridge Partners allocated the biggest weight to Chesapeake Energy Corporation (NYSE:CHK), around 0.42% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to CHK.

Because Chesapeake Energy Corporation (NYSE:CHK) has experienced declining sentiment from the smart money, it’s easy to see that there is a sect of hedgies that decided to sell off their full holdings by the end of the first quarter. At the top of the heap, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners dropped the biggest position of the 750 funds followed by Insider Monkey, comprising an estimated $24.5 million in stock, and Nancy Zimmerman and Gabriel Sunshine’s Bracebridge Capital was right behind this move, as the fund dropped about $13 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 4 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to Chesapeake Energy Corporation (NYSE:CHK). We will take a look at Signet Jewelers Limited (NYSE:SIG), Establishment Labs Holdings Inc. (NASDAQ:ESTA), Capital City Bank Group, Inc. (NASDAQ:CCBG), and DMC Global Inc. (NASDAQ:BOOM). This group of stocks’ market valuations are similar to CHK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SIG 25 72355 3
ESTA 14 64923 4
CCBG 3 6586 -2
BOOM 12 22475 -8
Average 13.5 41585 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $12 million in CHK’s case. Signet Jewelers Limited (NYSE:SIG) is the most popular stock in this table. On the other hand Capital City Bank Group, Inc. (NASDAQ:CCBG) is the least popular one with only 3 bullish hedge fund positions. Chesapeake Energy Corporation (NYSE:CHK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately CHK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CHK were disappointed as the stock returned -62.4% during the same time period 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 many of these stocks already outperformed the market so far this year.

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