Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Obsidian Energy Ltd. (NYSE:OBE) investors should pay attention to an increase in enthusiasm from smart money in recent months. Our calculations also showed that OBE isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.
Michael Platt of Bluecrest Capital Management
Let’s view the new hedge fund action encompassing Obsidian Energy Ltd. (NYSE:OBE).
How have hedgies been trading Obsidian Energy Ltd. (NYSE:OBE)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OBE over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, FrontFour Capital Group, managed by Stephen Loukas, David A. Lorber, Zachary George, holds the number one position in Obsidian Energy Ltd. (NYSE:OBE). FrontFour Capital Group has a $6.5 million position in the stock, comprising 8.7% of its 13F portfolio. On FrontFour Capital Group’s heels is Proxima Capital Management, led by Youlia Miteva, holding a $1.2 million position; 1.3% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions consist of Stephen Loukas, David A. Lorber, Zachary George’s FrontFour Capital Group, John Thiessen’s Vertex One Asset Management and Thomas E. Claugus’s GMT Capital.
Now, key hedge funds have jumped into Obsidian Energy Ltd. (NYSE:OBE) headfirst. BlueCrest Capital Mgmt., managed by Michael Platt and William Reeves, created the biggest position in Obsidian Energy Ltd. (NYSE:OBE). BlueCrest Capital Mgmt. had $0 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0 million position during the quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Obsidian Energy Ltd. (NYSE:OBE) but similarly valued. We will take a look at Pioneer Energy Services Corp (NYSE:PES), The ExOne Company (NASDAQ:XONE), Iteris Inc (NASDAQ:ITI), and Equillium, Inc. (NASDAQ:EQ). All of these stocks’ market caps are similar to OBE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PES | 6 | 1395 | 0 |
| XONE | 6 | 3420 | 4 |
| ITI | 5 | 10087 | 0 |
| EQ | 4 | 15300 | 0 |
| Average | 5.25 | 7551 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $9 million in OBE’s case. Pioneer Energy Services Corp (NYSE:PES) is the most popular stock in this table. On the other hand Equillium, Inc. (NASDAQ:EQ) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Obsidian Energy Ltd. (NYSE:OBE) is more popular among hedge funds. 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 OBE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OBE were disappointed as the stock returned -43.4% during the same 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 in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
