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These Hedge Funds Rushed Into Antero Resources Corporation (AR) Too Early

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Antero Resources Corporation (NYSE:AR).

Antero Resources Corporation (NYSE:AR) investors should pay attention to an increase in enthusiasm from smart money in recent months. AR was in 30 hedge funds’ portfolios at the end of the second quarter of 2019. There were 27 hedge funds in our database with AR positions at the end of the previous quarter. Our calculations also showed that AR isn’t among the 30 most popular stocks among hedge funds (see 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.

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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

BAUPOST GROUP Seth Klarman

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. Let’s view the latest hedge fund action encompassing Antero Resources Corporation (NYSE:AR).

Hedge fund activity in Antero Resources Corporation (NYSE:AR)

At Q2’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in AR a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

No of Hedge Funds with AR Positions

Of the funds tracked by Insider Monkey, FPR Partners, managed by Bob Peck and Andy Raab, holds the biggest position in Antero Resources Corporation (NYSE:AR). FPR Partners has a $170.1 million position in the stock, comprising 4.1% of its 13F portfolio. Coming in second is Baupost Group, led by Seth Klarman, holding a $158.1 million position; 1.4% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish comprise MacKenzie B. Davis and Kenneth L. Settles Jr’s SailingStone Capital Partners, Glenn Greenberg’s Brave Warrior Capital and Israel Englander’s Millennium Management.

Consequently, some big names were leading the bulls’ herd. Encompass Capital Advisors, managed by Todd J. Kantor, established the most valuable position in Antero Resources Corporation (NYSE:AR). Encompass Capital Advisors had $17 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also made a $6 million investment in the stock during the quarter. The other funds with brand new AR positions are Matt Smith’s Deep Basin Capital, Mike Vranos’s Ellington, and John R. Wagner’s SCW Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Antero Resources Corporation (NYSE:AR). We will take a look at NBT Bancorp Inc. (NASDAQ:NBTB), Freshpet Inc (NASDAQ:FRPT), CSG Systems International, Inc. (NASDAQ:CSGS), and CorVel Corporation (NASDAQ:CRVL). All of these stocks’ market caps resemble AR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NBTB 8 10119 2
FRPT 24 156672 -1
CSGS 18 215216 1
CRVL 15 174349 -1
Average 16.25 139089 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $639 million in AR’s case. Freshpet Inc (NASDAQ:FRPT) is the most popular stock in this table. On the other hand NBT Bancorp Inc. (NASDAQ:NBTB) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Antero Resources Corporation (NYSE:AR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AR were disappointed as the stock returned -45.4% 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 in Q3.

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

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