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Were Hedge Funds Right About Dumping EOG Resources Inc (EOG)?

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 EOG Resources Inc (NYSE:EOG).

Is EOG Resources Inc (NYSE:EOG) a first-rate investment right now? Hedge funds are taking a bearish view. The number of long hedge fund bets fell by 3 in recent months. Our calculations also showed that EOG isn’t among the 30 most popular stocks among hedge funds (see the video below). EOG was in 36 hedge funds’ portfolios at the end of June. There were 39 hedge funds in our database with EOG positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To most shareholders, hedge funds are seen as unimportant, old investment tools of yesteryear. While there are greater than 8000 funds in operation today, Our experts hone in on the moguls of this club, approximately 750 funds. These hedge fund managers direct most of the hedge fund industry’s total capital, and by tracking their inimitable equity investments, Insider Monkey has identified several investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship hedge fund strategy exceeded the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

EOG_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We’re going to take a look at the key hedge fund action encompassing EOG Resources Inc (NYSE:EOG).

How have hedgies been trading EOG Resources Inc (NYSE:EOG)?

At Q2’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in EOG a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Clint Carlson of Carlson Capital

Clint Carlson of Carlson Capital

The largest stake in EOG Resources Inc (NYSE:EOG) was held by Two Sigma Advisors, which reported holding $242.1 million worth of stock at the end of March. It was followed by Millennium Management with a $180.3 million position. Other investors bullish on the company included Citadel Investment Group, D E Shaw, and Balyasny Asset Management.

Since EOG Resources Inc (NYSE:EOG) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedge funds who were dropping their full holdings in the second quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of the 750 funds tracked by Insider Monkey, worth an estimated $90.6 million in stock. David Costen Haley’s fund, HBK Investments, also dumped its stock, about $10.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to EOG Resources Inc (NYSE:EOG). We will take a look at Air Products & Chemicals, Inc. (NYSE:APD), Simon Property Group, Inc (NYSE:SPG), Walgreens Boots Alliance Inc (NASDAQ:WBA), and Intercontinental Exchange Inc (NYSE:ICE). This group of stocks’ market valuations are similar to EOG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APD 32 506090 -2
SPG 26 908545 -2
WBA 41 782849 8
ICE 35 1926137 0
Average 33.5 1030905 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1031 million. That figure was $1212 million in EOG’s case. Walgreens Boots Alliance Inc (NASDAQ:WBA) is the most popular stock in this table. On the other hand Simon Property Group, Inc (NYSE:SPG) is the least popular one with only 26 bullish hedge fund positions. EOG Resources Inc (NYSE:EOG) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 EOG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EOG were disappointed as the stock returned -20.1% 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 so far this year.

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

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