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 Apache Corporation (NYSE:APA).
Apache Corporation (NYSE:APA) was in 26 hedge funds’ portfolios at the end of September. APA has experienced an increase in activity from the world’s largest hedge funds of late. There were 22 hedge funds in our database with APA holdings at the end of the previous quarter. Our calculations also showed that APA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Managemnet
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the latest hedge fund action regarding Apache Corporation (NYSE:APA).
What have hedge funds been doing with Apache Corporation (NYSE:APA)?
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards APA over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Orbis Investment Management was the largest shareholder of Apache Corporation (NYSE:APA), with a stake worth $335.9 million reported as of the end of September. Trailing Orbis Investment Management was Citadel Investment Group, which amassed a stake valued at $171.2 million. Alyeska Investment Group, Balyasny Asset Management, and Two Sigma 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 Elm Ridge Capital allocated the biggest weight to Apache Corporation (NYSE:APA), around 3.77% of its portfolio. Orbis Investment Management is also relatively very bullish on the stock, setting aside 2.48 percent of its 13F equity portfolio to APA.
As industrywide interest jumped, some big names were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, created the most valuable position in Apache Corporation (NYSE:APA). Alyeska Investment Group had $24.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $23.4 million position during the quarter. The following funds were also among the new APA investors: Israel Englander’s Millennium Management, Matt Smith’s Deep Basin Capital, and Jeffrey Talpins’s Element Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Apache Corporation (NYSE:APA) but similarly valued. These stocks are United Rentals, Inc. (NYSE:URI), Formula One Group (NASDAQ:FWONK), Avery Dennison Corporation (NYSE:AVY), and Vereit Inc (NYSE:VER). This group of stocks’ market values resemble APA’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position URI,54,1123521,10 FWONK,30,1915502,-2 AVY,22,125790,1 VER,34,613230,11 Average,35,944511,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $945 million. That figure was $693 million in APA’s case. United Rentals, Inc. (NYSE:URI) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 22 bullish hedge fund positions. Apache Corporation (NYSE:APA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately APA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); APA investors were disappointed as the stock returned -12% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.