We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees your average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Rosehill Resources Inc. (NASDAQ:ROSE).
Rosehill Resources Inc. (NASDAQ:ROSE) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds’ portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Orion Energy Systems, Inc. (NYSE:OESX), A-Mark Precious Metals, Inc. (NASDAQ:AMRK), and Aravive, Inc. (NASDAQ:ARAV) to gather more data points. Our calculations also showed that ROSE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example, Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a look at the key hedge fund action regarding Rosehill Resources Inc. (NASDAQ:ROSE).
How are hedge funds trading Rosehill Resources Inc. (NASDAQ:ROSE)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in ROSE a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Kevin Michael Ulrich and Anthony Davis’s Anchorage Advisors has the largest position in Rosehill Resources Inc. (NASDAQ:ROSE), worth close to $0.8 million, accounting for less than 0.1%% of its total 13F portfolio. The second-largest stake is held by Renaissance Technologies which holds a $0.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions consist of Vasan Kesavan, Srikumar Kesavan and Sandeep Ramesh’s Meghalaya Partners, Arvind Sanger’s GeoSphere Capital Management and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital. In terms of the portfolio weights assigned to each position GeoSphere Capital Management allocated the biggest weight to Rosehill Resources Inc. (NASDAQ:ROSE), around 0.97% of its 13F portfolio. Meghalaya Partners is also relatively very bullish on the stock, dishing out 0.5 percent of its 13F equity portfolio to ROSE.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s also examine hedge fund activity in other stocks similar to Rosehill Resources Inc. (NASDAQ:ROSE). These stocks are Orion Energy Systems, Inc. (NYSE:OESX), A-Mark Precious Metals, Inc. (NASDAQ:AMRK), Aravive, Inc. (NASDAQ:ARAV), and Abraxas Petroleum Corp. (NASDAQ:AXAS). All of these stocks’ market caps are closest to ROSE’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View the 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 $7 million. That figure was $2 million in ROSE’s case. Abraxas Petroleum Corp. (NASDAQ:AXAS) is the most popular stock in this table. On the other hand, A-Mark Precious Metals, Inc. (NASDAQ:AMRK) is the least popular one with only 3 bullish hedge fund positions. Rosehill Resources Inc. (NASDAQ:ROSE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ROSE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ROSE investors were disappointed as the stock returned -40% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.