In this article we will check out the progression of hedge fund sentiment towards Brigham Minerals, Inc. (NYSE:MNRL) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Brigham Minerals, Inc. (NYSE:MNRL) has experienced a decrease in hedge fund interest in recent months. Our calculations also showed that MNRL 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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the fresh hedge fund action encompassing Brigham Minerals, Inc. (NYSE:MNRL).
How have hedgies been trading Brigham Minerals, Inc. (NYSE:MNRL)?
Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MNRL over the last 18 quarters. 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, Deep Basin Capital, managed by Matt Smith, holds the most valuable position in Brigham Minerals, Inc. (NYSE:MNRL). Deep Basin Capital has a $25.2 million position in the stock, comprising 6.4% of its 13F portfolio. On Deep Basin Capital’s heels is Encompass Capital Advisors, led by Todd J. Kantor, holding a $10.4 million position; 1.1% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism comprise Israel Englander’s Millennium Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Steve Pattyn’s Yaupon Capital. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Brigham Minerals, Inc. (NYSE:MNRL), around 6.38% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, designating 3.43 percent of its 13F equity portfolio to MNRL.
Because Brigham Minerals, Inc. (NYSE:MNRL) has faced bearish sentiment from the smart money, it’s easy to see that there were a few money managers who sold off their full holdings in the first quarter. Interestingly, Stuart J. Zimmer’s Zimmer Partners dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $16.8 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund dumped about $5.4 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds in the first quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Brigham Minerals, Inc. (NYSE:MNRL) but similarly valued. We will take a look at Enova International Inc (NYSE:ENVA), Pacific Biosciences of California, Inc. (NASDAQ:PACB), Mesoblast Limited (NASDAQ:MESO), and Boingo Wireless Inc (NASDAQ:WIFI). All of these stocks’ market caps match MNRL’s market cap.
|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 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $54 million in MNRL’s case. Pacific Biosciences of California (NASDAQ:PACB) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Brigham Minerals, Inc. (NYSE:MNRL) 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 13.4% in 2020 through June 22nd but still managed to beat the market by 15.9 percentage points. Hedge funds were also right about betting on MNRL as the stock returned 56% so far in Q2 (through June 22nd) 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.
Disclosure: None. This article was originally published at Insider Monkey.