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Hedge Funds Are Souring On Solaris Oilfield Infrastructure, Inc. (SOI)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) based on that data and determine whether they were really smart about the stock.

Is Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) a healthy stock for your portfolio? The best stock pickers were taking a pessimistic view. The number of long hedge fund bets went down by 1 lately. Our calculations also showed that SOI 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.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Now let’s take a peek at the latest hedge fund action encompassing Solaris Oilfield Infrastructure, Inc. (NYSE:SOI).

What have hedge funds been doing with Solaris Oilfield Infrastructure, Inc. (NYSE:SOI)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SOI over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is SOI A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the number one position in Solaris Oilfield Infrastructure, Inc. (NYSE:SOI). Adage Capital Management has a $7.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Encompass Capital Advisors, led by Todd J. Kantor, holding a $5.5 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions contain Chuck Royce’s Royce & Associates, Paul Marshall and Ian Wace’s Marshall Wace LLP and  Renaissance Technologies. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to Solaris Oilfield Infrastructure, Inc. (NYSE:SOI), around 0.59% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to SOI.

Due to the fact that Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers who were dropping their entire stakes last quarter. Interestingly, Vince Maddi and Shawn Brennan’s SIR Capital Management cut the largest investment of the 750 funds monitored by Insider Monkey, worth about $1.1 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also dropped its stock, about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Solaris Oilfield Infrastructure, Inc. (NYSE:SOI). We will take a look at Stemline Therapeutics Inc (NASDAQ:STML), GTY Technology Holdings, Inc. (NASDAQ:GTYH), Oxford Immunotec Global PLC (NASDAQ:OXFD), and MutualFirst Financial, Inc. (NASDAQ:MFSF). This group of stocks’ market valuations are similar to SOI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STML 15 75214 0
GTYH 5 14885 0
OXFD 20 101540 3
MFSF 6 27492 -1
Average 11.5 54783 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $29 million in SOI’s case. Oxford Immunotec Global PLC (NASDAQ:OXFD) is the most popular stock in this table. On the other hand GTY Technology Holdings, Inc. (NASDAQ:GTYH) is the least popular one with only 5 bullish hedge fund positions. Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on SOI as the stock returned 43.5% during the second quarter and outperformed the market by an even larger margin.

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