Hedge Funds Have Never Been This Bullish On Viper Energy Partners LP (VNOM)

Is Viper Energy Partners LP (NASDAQ:VNOM) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Viper Energy Partners LP (NASDAQ:VNOM) has seen an increase in enthusiasm from smart money in recent months. VNOM was in 17 hedge funds’ portfolios at the end of the first quarter of 2019. There were 10 hedge funds in our database with VNOM holdings at the end of the previous quarter. Our calculations also showed that VNOM isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

hedge fund research

Let’s take a look at the recent hedge fund action encompassing Viper Energy Partners LP (NASDAQ:VNOM).

What have hedge funds been doing with Viper Energy Partners LP (NASDAQ:VNOM)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 70% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in VNOM a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).


The largest stake in Viper Energy Partners LP (NASDAQ:VNOM) was held by Millennium Management, which reported holding $50.5 million worth of stock at the end of March. It was followed by Cardinal Capital with a $45.6 million position. Other investors bullish on the company included Soros Fund Management, Alyeska Investment Group, and Vertex One Asset Management.

As aggregate interest increased, key money managers were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, created the biggest position in Viper Energy Partners LP (NASDAQ:VNOM). Alyeska Investment Group had $22.4 million invested in the company at the end of the quarter. John Thiessen’s Vertex One Asset Management also initiated a $10.1 million position during the quarter. The other funds with brand new VNOM positions are Alec Litowitz and Ross Laser’s Magnetar Capital, Steve Cohen’s Point72 Asset Management, and Till Bechtolsheimer’s Arosa Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Viper Energy Partners LP (NASDAQ:VNOM). We will take a look at United Microelectronics Corp (NYSE:UMC), First Industrial Realty Trust, Inc. (NYSE:FR), Haemonetics Corporation (NYSE:HAE), and Texas Roadhouse Inc (NASDAQ:TXRH). This group of stocks’ market caps are similar to VNOM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UMC 15 86705 -2
FR 11 303801 -7
HAE 24 648117 4
TXRH 25 267058 6
Average 18.75 326420 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $191 million in VNOM’s case. Texas Roadhouse Inc (NASDAQ:TXRH) is the most popular stock in this table. On the other hand First Industrial Realty Trust, Inc. (NYSE:FR) is the least popular one with only 11 bullish hedge fund positions. Viper Energy Partners LP (NASDAQ:VNOM) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately VNOM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VNOM investors were disappointed as the stock returned -11.8% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.

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