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Hedge Funds Never Been Less Bullish On Halliburton Company (HAL)

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 Halliburton Company (NYSE:HAL) and determine whether hedge funds skillfully traded this stock.

Halliburton Company (NYSE:HAL) investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. Halliburton Company (NYSE:HAL) was in 30 hedge funds’ portfolios at the end of June. The all time high for this statistics is 62. There were 32 hedge funds in our database with HAL positions at the end of the first quarter. Our calculations also showed that HAL 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s go over the new hedge fund action encompassing Halliburton Company (NYSE:HAL).

How have hedgies been trading Halliburton Company (NYSE:HAL)?

Heading into the third quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in HAL a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the number one position in Halliburton Company (NYSE:HAL), worth close to $510.6 million, corresponding to 3.3% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $54.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Ken Fisher’s Fisher Asset Management, Benjamin A. Smith’s Laurion Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Ogborne Capital allocated the biggest weight to Halliburton Company (NYSE:HAL), around 4.82% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 3.33 percent of its 13F equity portfolio to HAL.

Judging by the fact that Halliburton Company (NYSE:HAL) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedgies that slashed their full holdings in the second quarter. At the top of the heap, Todd J. Kantor’s Encompass Capital Advisors sold off the biggest investment of the 750 funds watched by Insider Monkey, totaling about $15.1 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $8.7 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds in the second quarter.

Let’s now review hedge fund activity in other stocks similar to Halliburton Company (NYSE:HAL). These stocks are Equity Lifestyle Properties, Inc. (NYSE:ELS), Principal Financial Group Inc (NASDAQ:PFG), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), Waters Corporation (NYSE:WAT), Varian Medical Systems, Inc. (NYSE:VAR), Ubiquiti Inc. (NYSE:UI), and SVB Financial Group (NASDAQ:SIVB). All of these stocks’ market caps match HAL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ELS 31 442219 0
PFG 31 188356 4
NBIX 38 1195826 0
WAT 38 615214 13
VAR 27 586063 2
UI 29 227931 6
SIVB 26 456322 -4
Average 31.4 530276 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.4 hedge funds with bullish positions and the average amount invested in these stocks was $530 million. That figure was $718 million in HAL’s case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand SVB Financial Group (NASDAQ:SIVB) is the least popular one with only 26 bullish hedge fund positions. Halliburton Company (NYSE:HAL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HAL is 34.2. 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. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. A small number of hedge funds were also right about betting on HAL as the stock returned 10.7% since the end of June (through September 14th) and outperformed the market by an even larger margin.

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