National Fuel Gas Company (NFG): Hedge Funds Are Nibbling

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards National Fuel Gas Company (NYSE:NFG) and determine whether hedge funds skillfully traded this stock.

National Fuel Gas Company (NYSE:NFG) investors should be aware of an increase in hedge fund sentiment lately. National Fuel Gas Company (NYSE:NFG) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 26. There were 18 hedge funds in our database with NFG holdings at the end of March. Our calculations also showed that NFG isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s view the latest hedge fund action regarding National Fuel Gas Company (NYSE:NFG).

Hedge fund activity in National Fuel Gas Company (NYSE:NFG)

At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NFG over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in National Fuel Gas Company (NYSE:NFG) was held by GAMCO Investors, which reported holding $65.1 million worth of stock at the end of September. It was followed by Zimmer Partners with a $53.2 million position. Other investors bullish on the company included Two Sigma Advisors, ExodusPoint Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to National Fuel Gas Company (NYSE:NFG), around 0.74% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, designating 0.72 percent of its 13F equity portfolio to NFG.

As aggregate interest increased, key hedge funds have jumped into National Fuel Gas Company (NYSE:NFG) headfirst. Zimmer Partners, managed by Stuart J. Zimmer, initiated the most valuable position in National Fuel Gas Company (NYSE:NFG). Zimmer Partners had $53.2 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $8.6 million position during the quarter. The other funds with brand new NFG positions are Renaissance Technologies, Ira Unschuld’s Brant Point Investment Management, and Greg Eisner’s Engineers Gate Manager.

Let’s now review hedge fund activity in other stocks similar to National Fuel Gas Company (NYSE:NFG). These stocks are Hutchison China MediTech Limited (NASDAQ:HCM), Southwest Gas Holdings, Inc. (NYSE:SWX), Houlihan Lokey Inc (NYSE:HLI), Brixmor Property Group Inc (NYSE:BRX), Acuity Brands, Inc. (NYSE:AYI), TopBuild Corp (NYSE:BLD), and Nexstar Media Group, Inc. (NASDAQ:NXST). All of these stocks’ market caps resemble NFG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HCM 7 34538 1
SWX 13 83518 0
HLI 24 146572 9
BRX 24 82889 -4
AYI 38 650114 7
BLD 30 141163 10
NXST 42 822223 1
Average 25.4 280145 3.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $280 million. That figure was $175 million in NFG’s case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 7 bullish hedge fund positions. National Fuel Gas Company (NYSE:NFG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NFG is 55.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately NFG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NFG investors were disappointed as the stock returned -2.2% in 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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