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

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 9 months of this year through September 30th the Standard and Poor’s 500 Index returned approximately 20% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Vermilion Energy Inc (NYSE:VET).

Vermilion Energy Inc (NYSE:VET) investors should be aware of an increase in hedge fund sentiment lately. Our calculations also showed that VET isn’t among the 30 most popular stocks among hedge funds (view 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.

John Overdeck of Two Sigma

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. We’re going to check out the fresh hedge fund action surrounding Vermilion Energy Inc (NYSE:VET).

Hedge fund activity in Vermilion Energy Inc (NYSE:VET)

Heading into the third quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in VET a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with VET Positions

Among these funds, Millennium Management held the most valuable stake in Vermilion Energy Inc (NYSE:VET), which was worth $4.9 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $2.2 million worth of shares. Moreover, Citadel Investment Group, Two Sigma Advisors, and Signition LP were also bullish on Vermilion Energy Inc (NYSE:VET), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the largest position in Vermilion Energy Inc (NYSE:VET). Millennium Management had $4.9 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $1.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Vermilion Energy Inc (NYSE:VET) but similarly valued. These stocks are Viavi Solutions Inc (NASDAQ:VIAV), Extended Stay America Inc (NASDAQ:STAY), American National Insurance Company (NASDAQ:ANAT), and Physicians Realty Trust (NYSE:DOC). All of these stocks’ market caps match VET’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VIAV 22 293123 -6
STAY 28 495473 -4
ANAT 15 69087 6
DOC 12 47665 1
Average 19.25 226337 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $10 million in VET’s case. Extended Stay America Inc (NASDAQ:STAY) is the most popular stock in this table. On the other hand Physicians Realty Trust (NYSE:DOC) 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 DOC. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 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 -20% 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 in 2019.

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

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