A market surge in the first quarter, spurred by easing global macroeconomic concerns and Powell’s pivot ended up having a positive impact on the markets and many hedge funds as a result. The stocks of smaller companies which were especially hard hit during the fourth quarter slightly outperformed the market during the first quarter. Unfortunately, Trump is unpredictable and volatility returned in the second quarter and smaller-cap stocks went back to selling off. We finished compiling the latest 13F filings to get an idea about what hedge funds are thinking about the overall market as well as individual stocks. In this article we will study the hedge fund sentiment to see how those concerns affected their ownership of SRC Energy Inc. (NYSE:SRCI) during the quarter.
Hedge fund interest in SRC Energy Inc. (NYSE:SRCI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SRCI to other stocks including Tupperware Brands Corporation (NYSE:TUP), First Commonwealth Financial Corporation (NYSE:FCF), and Gentherm Inc (NASDAQ:THRM) to get a better sense of its popularity.
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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s go over the new hedge fund action regarding SRC Energy Inc. (NYSE:SRCI).
How are hedge funds trading SRC Energy Inc. (NYSE:SRCI)?
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in SRCI 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.
According to Insider Monkey’s hedge fund database, MacKenzie B. Davis and Kenneth L. Settles Jr’s SailingStone Capital Partners has the largest position in SRC Energy Inc. (NYSE:SRCI), worth close to $130.3 million, accounting for 8.6% of its total 13F portfolio. On SailingStone Capital Partners’s heels is Millennium Management, managed by Israel Englander, which holds a $37.2 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism contain Debra Fine’s Fine Capital Partners, Matt Smith’s Deep Basin Capital and D. E. Shaw’s D E Shaw.
Judging by the fact that SRC Energy Inc. (NYSE:SRCI) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of funds who were dropping their entire stakes in the third quarter. At the top of the heap, Jonathan Barrett and Paul Segal’s Luminus Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, worth about $18.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $1.4 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SRC Energy Inc. (NYSE:SRCI) but similarly valued. We will take a look at Tupperware Brands Corporation (NYSE:TUP), First Commonwealth Financial Corporation (NYSE:FCF), Gentherm Inc (NASDAQ:THRM), and Berkshire Hills Bancorp, Inc. (NYSE:BHLB). This group of stocks’ market values are similar to SRCI’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 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $318 million in SRCI’s case. Tupperware Brands Corporation (NYSE:TUP) is the most popular stock in this table. On the other hand Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is the least popular one with only 13 bullish hedge fund positions. SRC Energy Inc. (NYSE:SRCI) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SRCI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SRCI investors were disappointed as the stock returned -10.5% during the same time 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 so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.