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 Antero Resources Corp (NYSE:AR) and determine whether hedge funds had an edge regarding this stock.
Antero Resources Corp (NYSE:AR) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds’ portfolios at the end of June. Our calculations also showed that AR 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Relmada Therapeutics, Inc. (NASDAQ:RLMD), Vocera Communications Inc (NYSE:VCRA), and Twin River Worldwide Holdings Inc. (NYSE:TRWH) to gather more data points. Our calculations also showed that AR 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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 junior gold mining stock. We are also checking out this lithium company which could 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. With all of this in mind we’re going to check out the recent hedge fund action surrounding Antero Resources Corp (NYSE:AR).
What have hedge funds been doing with Antero Resources Corp (NYSE:AR)?
At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in AR a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, FPR Partners held the most valuable stake in Antero Resources Corp (NYSE:AR), which was worth $45.2 million at the end of the third quarter. On the second spot was SailingStone Capital Partners which amassed $35.3 million worth of shares. Shah Capital Management, Arrowstreet Capital, and Pennant Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Shah Capital Management allocated the biggest weight to Antero Resources Corp (NYSE:AR), around 15.13% of its 13F portfolio. SailingStone Capital Partners is also relatively very bullish on the stock, designating 13.12 percent of its 13F equity portfolio to AR.
Judging by the fact that Antero Resources Corp (NYSE:AR) has faced declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of hedge funds who sold off their positions entirely in the second quarter. Interestingly, Glenn Greenberg’s Brave Warrior Capital sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling about $6.1 million in stock, and Lee Ainslie’s Maverick Capital was right behind this move, as the fund said goodbye to about $0.9 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Antero Resources Corp (NYSE:AR) but similarly valued. These stocks are Relmada Therapeutics, Inc. (NASDAQ:RLMD), Vocera Communications Inc (NYSE:VCRA), Twin River Worldwide Holdings Inc. (NYSE:TRWH), Solar Capital Ltd. (NASDAQ:SLRC), Geron Corporation (NASDAQ:GERN), Trillium Therapeutics Inc. (NASDAQ:TRIL), and Delek Logistics Partners LP (NYSE:DKL). This group of stocks’ market valuations are similar to AR’s market valuation.
|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 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $146 million in AR’s case. Trillium Therapeutics Inc. (NASDAQ:TRIL) is the most popular stock in this table. On the other hand Delek Logistics Partners LP (NYSE:DKL) is the least popular one with only 1 bullish hedge fund positions. Antero Resources Corp (NYSE:AR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AR is 59. 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 positive signal but 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 beat the market by 19.3 percentage points. Unfortunately AR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AR were disappointed as the stock returned 8.3% in Q3 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.