Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Equinor ASA (NYSE:EQNR) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that EQNR 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.
Let’s take a glance at the recent hedge fund action encompassing Equinor ASA (NYSE:EQNR).
What have hedge funds been doing with Equinor ASA (NYSE:EQNR)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the fourth quarter of 2018. By comparison, 0 hedge funds held shares or bullish call options in EQNR a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Equinor ASA (NYSE:EQNR), with a stake worth $197.8 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $72 million. Fisher Asset Management, Millennium Management, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Equinor ASA (NYSE:EQNR) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds who sold off their positions entirely by the end of the third quarter. Intriguingly, Ian Cumming and Joseph Steinberg’s Leucadia National said goodbye to the biggest stake of the 700 funds followed by Insider Monkey, valued at about $9.5 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund dumped about $8.2 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Equinor ASA (NYSE:EQNR). These stocks are Morgan Stanley (NYSE:MS), Mondelez International Inc (NASDAQ:MDLZ), The Goldman Sachs Group, Inc. (NYSE:GS), and CVS Health Corporation (NYSE:CVS). This group of stocks’ market valuations resemble EQNR’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 59.5 hedge funds with bullish positions and the average amount invested in these stocks was $3645 million. That figure was $352 million in EQNR’s case. The Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand Mondelez International Inc (NASDAQ:MDLZ) is the least popular one with only 47 bullish hedge fund positions. Compared to these stocks Equinor ASA (NYSE:EQNR) is even less popular than MDLZ. Hedge funds dodged a bullet by taking a bearish stance towards EQNR. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately EQNR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EQNR investors were disappointed as the stock returned -10.7% during the same time frame 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 the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.