Hedge Funds Are Dumping National Fuel Gas Company (NFG)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of National Fuel Gas Company (NYSE:NFG).

National Fuel Gas Company (NYSE:NFG) was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. NFG has seen a decrease in hedge fund sentiment lately. There were 26 hedge funds in our database with NFG holdings at the end of the previous quarter. Our calculations also showed that NFG 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Steven Cohen

Steven Cohen of Point72 Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the fresh hedge fund action surrounding National Fuel Gas Company (NYSE:NFG).

What does smart money think about National Fuel Gas Company (NYSE:NFG)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in NFG a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, GAMCO Investors held the most valuable stake in National Fuel Gas Company (NYSE:NFG), which was worth $74.9 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $9.1 million worth of shares. Two Sigma Advisors, Millennium Management, and Citadel Investment Group 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 GAMCO Investors allocated the biggest weight to National Fuel Gas Company (NYSE:NFG), around 0.88% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, dishing out 0.31 percent of its 13F equity portfolio to NFG.

Seeing as National Fuel Gas Company (NYSE:NFG) has experienced declining sentiment from hedge fund managers, we can see that there were a few hedgies that decided to sell off their full holdings heading into Q4. Intriguingly, Gregg J. Powers’s Private Capital Management sold off the largest position of all the hedgies tracked by Insider Monkey, comprising close to $10.5 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund dropped about $2.6 million worth. These transactions are important to note, as total hedge fund interest dropped by 8 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as National Fuel Gas Company (NYSE:NFG) but similarly valued. We will take a look at Safehold Inc. (NYSE:SAFE), Huntsman Corporation (NYSE:HUN), Parsons Corporation (NYSE:PSN), and Cemex SAB de CV (NYSE:CX). All of these stocks’ market caps are similar to NFG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SAFE 5 7608 -2
HUN 21 305231 -18
PSN 15 93372 5
CX 12 98642 -1
Average 13.25 126213 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $104 million in NFG’s case. Huntsman Corporation (NYSE:HUN) is the most popular stock in this table. On the other hand Safehold Inc. (NYSE:SAFE) is the least popular one with only 5 bullish hedge fund positions. National Fuel Gas Company (NYSE:NFG) 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. Unfortunately NFG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NFG were disappointed as the stock returned 7.9% 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.