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Hedge Funds Don’t Like Hess Corporation (HES) Much

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Hess Corporation (NYSE:HES) and determine whether hedge funds skillfully traded this stock.

Hess Corporation (NYSE:HES) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 28 hedge funds’ portfolios at the end of June. Our calculations also showed that HES 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). At the end of this article we will also compare HES to other stocks including Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Arista Networks Inc (NYSE:ANET), and Baker Hughes Company (NYSE:BKR) to get a better sense of its popularity.

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.

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Keeping this in mind we’re going to go over the fresh hedge fund action surrounding Hess Corporation (NYSE:HES).

What does smart money think about Hess Corporation (NYSE:HES)?

Heading into the third quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in HES a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HES A Good Stock To Buy?

The largest stake in Hess Corporation (NYSE:HES) was held by Fisher Asset Management, which reported holding $142.5 million worth of stock at the end of September. It was followed by Caxton Associates LP with a $52.4 million position. Other investors bullish on the company included Citadel Investment Group, Impala Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Caxton Associates LP allocated the biggest weight to Hess Corporation (NYSE:HES), around 4.57% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, earmarking 3.28 percent of its 13F equity portfolio to HES.

Since Hess Corporation (NYSE:HES) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of fund managers that slashed their entire stakes last quarter. Intriguingly, Sara Nainzadeh’s Centenus Global Management dumped the biggest stake of the 750 funds monitored by Insider Monkey, valued at close to $3.3 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dropped its stock, about $2.7 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Hess Corporation (NYSE:HES) but similarly valued. These stocks are Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Arista Networks Inc (NYSE:ANET), Baker Hughes Company (NYSE:BKR), Agnico Eagle Mines Limited (NYSE:AEM), ORIX Corporation (NYSE:IX), Trip.com Group Limited (NASDAQ:TCOM), and Invitation Homes Inc. (NYSE:INVH). All of these stocks’ market caps resemble HES’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTWO 61 1412613 -5
ANET 33 510414 9
BKR 27 403640 -3
AEM 30 594031 5
IX 4 3765 0
TCOM 29 1235313 -2
INVH 33 694166 6
Average 31 693420 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $693 million. That figure was $335 million in HES’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 4 bullish hedge fund positions. Hess Corporation (NYSE:HES) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HES is 46.5. 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. This is a slightly negative signal and 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately HES wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HES investors were disappointed as the stock returned -21.4% since Q2 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.