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Hedge Funds Never Been Less Bullish On Oasis Petroleum Inc. (OAS)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtOasis Petroleum Inc. (NASDAQ:OAS) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Oasis Petroleum Inc. (NASDAQ:OAS) an exceptional investment right now? Prominent investors were reducing their bets on the stock. The number of long hedge fund bets retreated by 4 recently. Our calculations also showed that OAS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 9 states that banned plastic bags to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the recent hedge fund action encompassing Oasis Petroleum Inc. (NASDAQ:OAS).

What have hedge funds been doing with Oasis Petroleum Inc. (NASDAQ:OAS)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in OAS a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Oasis Petroleum Inc. (NASDAQ:OAS), which was worth $1.2 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $1.1 million worth of shares. Renaissance Technologies, Luminus Management, and D E Shaw 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 Luminus Management allocated the biggest weight to Oasis Petroleum Inc. (NASDAQ:OAS), around 0.03% of its 13F portfolio. Springbok Capital is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to OAS.

Due to the fact that Oasis Petroleum Inc. (NASDAQ:OAS) has experienced declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of hedge funds that slashed their entire stakes by the end of the first quarter. Interestingly, Brandon Haley’s Holocene Advisors cut the largest position of all the hedgies monitored by Insider Monkey, comprising close to $7 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $4.2 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to Oasis Petroleum Inc. (NASDAQ:OAS). These stocks are BP Prudhoe Bay Royalty Trust (NYSE:BPT), EMX Royalty Corporation (NYSE:EMX), First Northwest Bancorp (NASDAQ:FNWB), and Eagle Bancorp Montana Inc (NASDAQ:EBMT). This group of stocks’ market values resemble OAS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BPT 2 194 0
EMX 2 3360 0
FNWB 3 12965 -1
EBMT 7 12532 -1
Average 3.5 7263 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $4 million in OAS’s case. Eagle Bancorp Montana Inc (NASDAQ:EBMT) is the most popular stock in this table. On the other hand BP Prudhoe Bay Royalty Trust (NYSE:BPT) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Oasis Petroleum Inc. (NASDAQ:OAS) is more popular among hedge funds. 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 returned 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on OAS as the stock returned 140% so far in Q2 (through June 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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