Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 34.7% in 2019 (through November 22) and outperformed the broader market benchmark by 8.5 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Parsley Energy Inc (NYSE:PE) ready to rally soon? The smart money is turning bullish. The number of bullish hedge fund positions went up by 8 recently. Our calculations also showed that PE isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Phill Gross of Adage Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the new hedge fund action encompassing Parsley Energy Inc (NYSE:PE).
How have hedgies been trading Parsley Energy Inc (NYSE:PE)?
At Q3’s end, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PE over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Phill Gross and Robert Atchinson’s Adage Capital Management has the largest position in Parsley Energy Inc (NYSE:PE), worth close to $159.7 million, accounting for 0.4% of its total 13F portfolio. On Adage Capital Management’s heels is Citadel Investment Group, led by Ken Griffin, holding a $120.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Jonathan Barrett and Paul Segal’s Luminus Management, James Dinan’s York Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position SIR Capital Management allocated the biggest weight to Parsley Energy Inc (NYSE:PE), around 6.96% of its portfolio. Proxima Capital Management is also relatively very bullish on the stock, designating 3.88 percent of its 13F equity portfolio to PE.
Now, specific money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, initiated the most outsized position in Parsley Energy Inc (NYSE:PE). Alyeska Investment Group had $25.7 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $13.1 million position during the quarter. The other funds with brand new PE positions are Noam Gottesman’s GLG Partners, David Rosen’s Rubric Capital Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Parsley Energy Inc (NYSE:PE). We will take a look at Trex Company, Inc. (NYSE:TREX), Williams-Sonoma, Inc. (NYSE:WSM), PG&E Corporation (NYSE:PCG), and NewMarket Corporation (NYSE:NEU). This group of stocks’ market caps match PE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TREX | 18 | 104493 | -1 |
| WSM | 24 | 287642 | -3 |
| PCG | 64 | 2847473 | -3 |
| NEU | 27 | 193660 | 7 |
| Average | 33.25 | 858317 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $858 million. That figure was $779 million in PE’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Trex Company, Inc. (NYSE:TREX) is the least popular one with only 18 bullish hedge fund positions. Parsley Energy Inc (NYSE:PE) 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 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately PE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PE were disappointed as the stock returned -8% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
