Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like National Energy Services Reunited Corp. (NASDAQ:NESR).
National Energy Services Reunited Corp. (NASDAQ:NESR) was in 9 hedge funds’ portfolios at the end of the third quarter of 2019. NESR has experienced an increase in hedge fund sentiment of late. There were 7 hedge funds in our database with NESR holdings at the end of the previous quarter. Our calculations also showed that NESR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are several gauges shareholders put to use to evaluate publicly traded companies. A pair of the most underrated gauges are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the elite investment managers can outclass the S&P 500 by a solid margin (see the details here).
Israel Englander of Millennium 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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the new hedge fund action surrounding National Energy Services Reunited Corp. (NASDAQ:NESR).
How are hedge funds trading National Energy Services Reunited Corp. (NASDAQ:NESR)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NESR over the last 17 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Encompass Capital Advisors was the largest shareholder of National Energy Services Reunited Corp. (NASDAQ:NESR), with a stake worth $19.8 million reported as of the end of September. Trailing Encompass Capital Advisors was Millennium Management, which amassed a stake valued at $1.8 million. SIR Capital Management, Springbok Capital, and GeoSphere Capital Management 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 GeoSphere Capital Management allocated the biggest weight to National Energy Services Reunited Corp. (NASDAQ:NESR), around 6.19% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, setting aside 1.36 percent of its 13F equity portfolio to NESR.
As industrywide interest jumped, specific money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, initiated the largest position in National Energy Services Reunited Corp. (NASDAQ:NESR). Millennium Management had $1.8 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $0.2 million position during the quarter. The other funds with brand new NESR positions are Bart Baum’s Ionic Capital Management and Andrew Weiss’s Weiss Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as National Energy Services Reunited Corp. (NASDAQ:NESR) but similarly valued. We will take a look at CryoPort, Inc. (NASDAQ:CYRX), Hanmi Financial Corp (NASDAQ:HAFC), Ultra Clean Holdings Inc (NASDAQ:UCTT), and First Mid-Illinois Bancshares, Inc. (NASDAQ:FMBH). This group of stocks’ market valuations are closest to NESR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CYRX | 10 | 28222 | -1 |
| HAFC | 9 | 31387 | 1 |
| UCTT | 13 | 65196 | 2 |
| FMBH | 5 | 11001 | 2 |
| Average | 9.25 | 33952 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $25 million in NESR’s case. Ultra Clean Holdings Inc (NASDAQ:UCTT) is the most popular stock in this table. On the other hand First Mid-Illinois Bancshares, Inc. (NASDAQ:FMBH) is the least popular one with only 5 bullish hedge fund positions. National Energy Services Reunited Corp. (NASDAQ:NESR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NESR as the stock returned 37% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
