Hedge Funds’ Top Energy Picks Show Strong Gains

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If one makes a list of the sectors that have underperformed in the last two years, there is no doubt that the energy sector will occupy the one of the top positions, if not the top position, in that list. The crude oil and natural gas rout that we have seen during that period had a disastrous effect on the financials of energy companies, raising fears that some of them are on the verge of bankruptcy. However, since mid-February there has been a dramatic pullback in crude oil prices, which has translated well for energy stocks, helping them to recoup some of the losses they have suffered in the past few quarters. Considering that a large number of hedge funds among the over 800 funds we cover were bullish on several energy stocks while entering 2016, in this article, we are going to focus on the five most popular energy stocks among hedge funds at that time and analyze  their individual performances so far this year.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

 #5 Halliburton Company (NYSE:HAL)

– Investors with Long Positions (as of December 31): 53

– Aggregate Value of Investors’ Holdings (as of December 31): $2.56 billion

Let’s start with Halliburton Company (NYSE:HAL), which saw its ownership among funds from our database declining by six and the aggregate value of their holdings in it falling by $1.2 billion during the fourth quarter. Billionaire Andreas Halvorsen initiated a stake in Halliburton Company (NYSE:HAL) during that period by purchasing 6.66 million shares of the company. Shares of Halliburton Company ended the first quarter with gains of 5.5% , but have soared even higher this month and currently trade with year-to-date gains of over 9%. On April 6, the U.S. Justice Department (DoJ) has filed a civil antitrust suit seeking to block the previously announced $35 billion merger between Halliburton Company and Baker Hughes (NYSE:BHI). The same day both the companies jointly issued a press release stating that they will “vigorously contest the U.S. Department of Justice’s (DoJ) effort to block their pending merger.” As per the agreement between both the companies,  if the deal fails to materialize Halliburton Company will have to pay $3.5 billion to Baker Hughes (NYSE:BHI), which analysts feel will have a severe impact on the former’s balance sheet.

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