Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Halliburton Company (NYSE:HAL)? The smart money sentiment can provide an answer to this question.
Is HAL a good stock to buy? Investors who are in the know were getting more bullish. The number of long hedge fund bets advanced by 2 in recent months. Halliburton Company (NYSE:HAL) was in 32 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 62. Our calculations also showed that HAL isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding Halliburton Company (NYSE:HAL).
Do Hedge Funds Think HAL Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HAL over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Halliburton Company (NYSE:HAL) was held by Pzena Investment Management, which reported holding $481.7 million worth of stock at the end of September. It was followed by Laurion Capital Management with a $50.7 million position. Other investors bullish on the company included Fisher Asset Management, Citadel Investment Group, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to Halliburton Company (NYSE:HAL), around 3.01% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, setting aside 2.79 percent of its 13F equity portfolio to HAL.
As industrywide interest jumped, some big names were breaking ground themselves. Arosa Capital Management, managed by Till Bechtolsheimer, created the most valuable position in Halliburton Company (NYSE:HAL). Arosa Capital Management had $2.4 million invested in the company at the end of the quarter. Parvinder Thiara’s Athanor Capital also made a $1.3 million investment in the stock during the quarter. The following funds were also among the new HAL investors: Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, Qing Li’s Sciencast Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Halliburton Company (NYSE:HAL). These stocks are Eastman Chemical Company (NYSE:EMN), Vipshop Holdings Limited (NYSE:VIPS), James Hardie Industries plc (NYSE:JHX), CNH Industrial NV (NYSE:CNHI), CenterPoint Energy, Inc. (NYSE:CNP), DaVita Inc (NYSE:DVA), and Lennox International Inc. (NYSE:LII). This group of stocks’ market values are similar to HAL’s market value.
|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 23 hedge funds with bullish positions and the average amount invested in these stocks was $721 million. That figure was $677 million in HAL’s case. DaVita Inc (NYSE:DVA) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 4 bullish hedge fund positions. Halliburton Company (NYSE:HAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HAL is 69.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on HAL as the stock returned 63.8% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.