Is Vermilion Energy Inc (VET) Going to Burn These Hedge Funds?

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 you 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 Vermilion Energy Inc (NYSE:VET).

Vermilion Energy Inc (NYSE:VET) shareholders have witnessed an increase in hedge fund sentiment lately. VET was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with VET holdings at the end of the previous quarter. Our calculations also showed that VET isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

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. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the key hedge fund action regarding Vermilion Energy Inc (NYSE:VET).

What have hedge funds been doing with Vermilion Energy Inc (NYSE:VET)?

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VET over the last 17 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Vermilion Energy Inc (NYSE:VET) was held by Encompass Capital Advisors, which reported holding $36.3 million worth of stock at the end of September. It was followed by Millennium Management with a $3 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Marshall Wace. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to Vermilion Energy Inc (NYSE:VET), around 2.49% of its 13F portfolio. Signition LP is also relatively very bullish on the stock, dishing out 2.37 percent of its 13F equity portfolio to VET.

As one would reasonably expect, key money managers were leading the bulls’ herd. Encompass Capital Advisors, managed by Todd J. Kantor, initiated the most valuable position in Vermilion Energy Inc (NYSE:VET). Encompass Capital Advisors had $36.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also initiated a $0.7 million position during the quarter. The other funds with brand new VET positions are Noam Gottesman’s GLG Partners, Joel Greenblatt’s Gotham Asset Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Vermilion Energy Inc (NYSE:VET) but similarly valued. These stocks are Cohen & Steers, Inc. (NYSE:CNS), Cogent Communications Holdings, Inc. (NASDAQ:CCOI), Independent Bank Corp (NASDAQ:INDB), and AVX Corporation (NYSE:AVX). This group of stocks’ market valuations are similar to VET’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNS 16 76446 1
CCOI 26 303103 8
INDB 12 20276 1
AVX 13 68575 2
Average 16.75 117100 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $47 million in VET’s case. Cogent Communications Holdings, Inc. (NASDAQ:CCOI) is the most popular stock in this table. On the other hand Independent Bank Corp (NASDAQ:INDB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Vermilion Energy Inc (NYSE:VET) is even less popular than INDB. Hedge funds dodged a bullet by taking a bearish stance towards VET. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately VET wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VET investors were disappointed as the stock returned -11.4% during the fourth quarter (through the end of November) 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 so far in Q4.

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