It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 SRC Energy Inc. (NYSE:SRCI).
Is SRC Energy Inc. (NYSE:SRCI) a healthy stock for your portfolio? Prominent investors are taking a bullish view. The number of long hedge fund positions increased by 1 lately. Our calculations also showed that SRCI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SRCI was in 20 hedge funds’ portfolios at the end of September. There were 19 hedge funds in our database with SRCI holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
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 look at the new hedge fund action regarding SRC Energy Inc. (NYSE:SRCI).
How are hedge funds trading SRC Energy Inc. (NYSE:SRCI)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in SRCI a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in SRC Energy Inc. (NYSE:SRCI) was held by Mangrove Partners, which reported holding $56.4 million worth of stock at the end of September. It was followed by SailingStone Capital Partners with a $47.9 million position. Other investors bullish on the company included Luminus Management, Deep Basin Capital, and D E Shaw. In terms of the portfolio weights assigned to each position SailingStone Capital Partners allocated the biggest weight to SRC Energy Inc. (NYSE:SRCI), around 12.17% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, earmarking 6.83 percent of its 13F equity portfolio to SRCI.
As one would reasonably expect, some big names have jumped into SRC Energy Inc. (NYSE:SRCI) headfirst. Mangrove Partners, managed by Nathaniel August, assembled the largest position in SRC Energy Inc. (NYSE:SRCI). Mangrove Partners had $56.4 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $13.9 million investment in the stock during the quarter. The other funds with brand new SRCI positions are Robert Emil Zoellner’s Alpine Associates, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Brett Hendrickson’s Nokomis Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SRC Energy Inc. (NYSE:SRCI) but similarly valued. These stocks are KKR Real Estate Finance Trust Inc. (NYSE:KREF), NextPoint Residential Trust Inc (NYSE:NXRT), OFG Bancorp (NYSE:OFG), and Canadian Solar Inc. (NASDAQ:CSIQ). All of these stocks’ market caps match SRCI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KREF | 8 | 52402 | -1 |
| NXRT | 10 | 203374 | 0 |
| OFG | 14 | 65351 | -4 |
| CSIQ | 17 | 115434 | 4 |
| Average | 12.25 | 109140 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $246 million in SRCI’s case. Canadian Solar Inc. (NASDAQ:CSIQ) is the most popular stock in this table. On the other hand KKR Real Estate Finance Trust Inc. (NYSE:KREF) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks SRC Energy Inc. (NYSE:SRCI) is more popular among hedge funds. 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. Unfortunately SRCI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SRCI were disappointed as the stock returned -23.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
