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Were Hedge Funds Right About Dumping Pioneer Natural Resources Company (PXD)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Pioneer Natural Resources Company (NYSE:PXD) based on that data and determine whether they were really smart about the stock.

Pioneer Natural Resources Company (NYSE:PXD) investors should be aware of a decrease in support from the world’s most elite money managers recently. Our calculations also showed that PXD 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.

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 S&P 500 ETFs by more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. 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. With all of this in mind we’re going to go over the new hedge fund action regarding Pioneer Natural Resources Company (NYSE:PXD).

Hedge fund activity in Pioneer Natural Resources Company (NYSE:PXD)

At Q1’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 55 hedge funds with a bullish position in PXD a year ago. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Pioneer Natural Resources Company (NYSE:PXD) was held by Adage Capital Management, which reported holding $109.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $91.3 million position. Other investors bullish on the company included Encompass Capital Advisors, Abrams Bison Investments, and MFN Partners. In terms of the portfolio weights assigned to each position Abrams Bison Investments allocated the biggest weight to Pioneer Natural Resources Company (NYSE:PXD), around 9.36% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, earmarking 9.24 percent of its 13F equity portfolio to PXD.

Because Pioneer Natural Resources Company (NYSE:PXD) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few funds who sold off their entire stakes last quarter. Interestingly, Brian J. Higgins’s King Street Capital said goodbye to the largest position of the 750 funds followed by Insider Monkey, valued at about $85.7 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $84.4 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 13 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Pioneer Natural Resources Company (NYSE:PXD). We will take a look at Invitation Homes Inc. (NYSE:INVH), Ryanair Holdings plc (NASDAQ:RYAAY), Arch Capital Group Ltd. (NASDAQ:ACGL), and LINE Corporation (NYSE:LN). This group of stocks’ market caps are similar to PXD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INVH 27 562992 -6
RYAAY 22 550561 0
ACGL 33 733577 10
LN 7 59060 -6
Average 22.25 476548 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $477 million. That figure was $535 million in PXD’s case. Arch Capital Group Ltd. (NASDAQ:ACGL) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Pioneer Natural Resources Company (NYSE:PXD) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on PXD as the stock returned 40.1% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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