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Is Solaris Oilfield Infrastructure, Inc. (SOI) Going to Burn These Hedge Funds?

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) and see how the stock is affected by the recent hedge fund activity.

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) investors should be aware of a decrease in hedge fund interest in recent months. SOI was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with SOI positions at the end of the previous quarter. Our calculations also showed that SOI isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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.

SOI_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the fresh hedge fund action encompassing Solaris Oilfield Infrastructure, Inc. (NYSE:SOI).

How have hedgies been trading Solaris Oilfield Infrastructure, Inc. (NYSE:SOI)?

At Q2’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the first quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in SOI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

BlueMountain Capital Management's Returns, AUM and Holdings

Of the funds tracked by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the number one position in Solaris Oilfield Infrastructure, Inc. (NYSE:SOI). Adage Capital Management has a $21.5 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Encompass Capital Advisors, led by Todd J. Kantor, holding a $10.7 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, Israel Englander’s Millennium Management and Renaissance Technologies.

Since Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there were a few hedgies that slashed their entire stakes in the second quarter. Interestingly, Anand Parekh’s Alyeska Investment Group sold off the largest stake of all the hedgies monitored by Insider Monkey, worth close to $12.7 million in stock. T Boone Pickens’s fund, BP Capital, also said goodbye to its stock, about $1.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds in the second quarter.

Let’s now review hedge fund activity in other stocks similar to Solaris Oilfield Infrastructure, Inc. (NYSE:SOI). These stocks are Morphic Holding, Inc. (NASDAQ:MORF), Regis Corporation (NYSE:RGS), eXp World Holdings, Inc. (NASDAQ:EXPI), and Precision BioSciences, Inc. (NASDAQ:DTIL). This group of stocks’ market valuations match SOI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MORF 6 62838 6
RGS 14 245467 -1
EXPI 2 323 -2
DTIL 9 64292 -5
Average 7.75 93230 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $66 million in SOI’s case. Regis Corporation (NYSE:RGS) is the most popular stock in this table. On the other hand eXp World Holdings, Inc. (NASDAQ:EXPI) is the least popular one with only 2 bullish hedge fund positions. Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SOI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SOI were disappointed as the stock returned -9.8% during the third 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 many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.

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