Liberty Oilfield Services Inc. (LBRT): Hedge Funds Taking Some Chips Off The Table

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Liberty Oilfield Services Inc. (NYSE:LBRT) and determine whether hedge funds had an edge regarding this stock.

Liberty Oilfield Services Inc. (NYSE:LBRT) investors should pay attention to a decrease in support from the world’s most elite money managers recently. LBRT was in 12 hedge funds’ portfolios at the end of March. There were 16 hedge funds in our database with LBRT holdings at the end of the previous quarter. Our calculations also showed that LBRT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the fresh hedge fund action encompassing Liberty Oilfield Services Inc. (NYSE:LBRT).

Hedge fund activity in Liberty Oilfield Services Inc. (NYSE:LBRT)

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LBRT over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Thomas E. Claugus’s GMT Capital has the most valuable position in Liberty Oilfield Services Inc. (NYSE:LBRT), worth close to $3.9 million, corresponding to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Alyeska Investment Group, led by Anand Parekh, holding a $3.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish encompass Dmitry Balyasny’s Balyasny Asset Management, Jim Roumell’s Roumell Asset Management and David Harding’s Winton Capital Management. In terms of the portfolio weights assigned to each position Roumell Asset Management allocated the biggest weight to Liberty Oilfield Services Inc. (NYSE:LBRT), around 3.81% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, setting aside 0.22 percent of its 13F equity portfolio to LBRT.

Due to the fact that Liberty Oilfield Services Inc. (NYSE:LBRT) has faced declining sentiment from hedge fund managers, it’s safe to say that there exists a select few hedge funds that slashed their full holdings in the first quarter. At the top of the heap, Mark Broach’s Manatuck Hill Partners cut the biggest investment of the “upper crust” of funds watched by Insider Monkey, valued at about $1.5 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $1.3 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 4 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Liberty Oilfield Services Inc. (NYSE:LBRT) but similarly valued. These stocks are Viomi Technology Co., Ltd (NASDAQ:VIOT), Pfenex Inc (NYSE:PFNX), US Concrete Inc (NASDAQ:USCR), and Diamond Hill Investment Group, Inc. (NASDAQ:DHIL). All of these stocks’ market caps are closest to LBRT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VIOT 5 15007 -2
PFNX 14 41255 -2
USCR 12 23829 -1
DHIL 11 24838 -3
Average 10.5 26232 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $11 million in LBRT’s case. Pfenex Inc (NYSE:PFNX) is the most popular stock in this table. On the other hand Viomi Technology Co., Ltd (NASDAQ:VIOT) is the least popular one with only 5 bullish hedge fund positions. Liberty Oilfield Services Inc. (NYSE:LBRT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on LBRT as the stock returned 103.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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