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

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Pioneer Natural Resources Company (NYSE:PXD).

Pioneer Natural Resources Company (NYSE:PXD) has experienced an increase in enthusiasm from smart money of late. PXD was in 53 hedge funds’ portfolios at the end of December. There were 50 hedge funds in our database with PXD positions at the end of the previous quarter. Our calculations also showed that PXD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 41 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.

Charles Davidson - Wexford Capital

Charles Davidson of Wexford Capital

Now we’re going to take a gander at the latest hedge fund action surrounding Pioneer Natural Resources Company (NYSE:PXD).

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

Heading into the first quarter of 2020, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PXD over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Adage Capital Management was the largest shareholder of Pioneer Natural Resources Company (NYSE:PXD), with a stake worth $133.9 million reported as of the end of September. Trailing Adage Capital Management was Abrams Bison Investments, which amassed a stake valued at $102.5 million. King Street Capital, Point72 Asset Management, and Encompass Capital Advisors 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 Abrams Bison Investments allocated the biggest weight to Pioneer Natural Resources Company (NYSE:PXD), around 14.86% of its 13F portfolio. Covalent Capital Partners is also relatively very bullish on the stock, setting aside 12.99 percent of its 13F equity portfolio to PXD.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, initiated the most outsized position in Pioneer Natural Resources Company (NYSE:PXD). Senator Investment Group had $60.5 million invested in the company at the end of the quarter. Robert Polak’s Anchor Bolt Capital also made a $14.5 million investment in the stock during the quarter. The following funds were also among the new PXD investors: Charles Davidson and Joseph Jacobs’s Wexford Capital, George Soros’s Soros Fund Management, and Mark Coe’s Intrinsic Edge Capital.

Let’s now review hedge fund activity in other stocks similar to Pioneer Natural Resources Company (NYSE:PXD). These stocks are Microchip Technology Incorporated (NASDAQ:MCHP), Digital Realty Trust, Inc. (NYSE:DLR), FleetCor Technologies, Inc. (NYSE:FLT), and DTE Energy Company (NYSE:DTE). 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
MCHP 46 1428178 14
DLR 26 175397 7
FLT 44 2121544 -1
DTE 35 1090279 12
Average 37.75 1203850 8

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $1204 million. That figure was $1071 million in PXD’s case. Microchip Technology Incorporated (NASDAQ:MCHP) is the most popular stock in this table. On the other hand Digital Realty Trust, Inc. (NYSE:DLR) is the least popular one with only 26 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 gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately PXD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PXD were disappointed as the stock returned -44.8% during the four months of 2020 (through May 1st) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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