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2019 Review: Most Favored Hedge Fund Stocks vs. Antero Resources Corp (AR)

Asma UL Husna

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Antero Resources Corp (NYSE:AR).

Is Antero Resources Corp (NYSE:AR) a buy, sell, or hold? Prominent investors are in a pessimistic mood. The number of long hedge fund positions shrunk by 4 in recent months. Our calculations also showed that AR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). AR was in 26 hedge funds' portfolios at the end of September. There were 30 hedge funds in our database with AR holdings at the end of the previous quarter.

Today there are several gauges market participants employ to evaluate their holdings. Two of the most underrated gauges are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can outpace their index-focused peers by a very impressive margin (see the details here).

[caption id="attachment_670485" align="aligncenter" width="473"] Michael Platt of BlueCrest Capital Mgmt.[/caption]

Michael Platt BlueCrest Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we're going to take a glance at the key hedge fund action encompassing Antero Resources Corp (NYSE:AR).

What does smart money think about Antero Resources Corp (NYSE:AR)?

At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in AR a year ago. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, FPR Partners held the most valuable stake in Antero Resources Corp (NYSE:AR), which was worth $92.9 million at the end of the third quarter. On the second spot was Baupost Group which amassed $63.7 million worth of shares. SailingStone Capital Partners, Brave Warrior Capital, 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 SailingStone Capital Partners allocated the biggest weight to Antero Resources Corp (NYSE:AR), around 15.72% of its 13F portfolio. Mountain Lake Investment Management is also relatively very bullish on the stock, earmarking 2.37 percent of its 13F equity portfolio to AR.

Seeing as Antero Resources Corp (NYSE:AR) has experienced falling interest from hedge fund managers, it's easy to see that there exists a select few fund managers that elected to cut their entire stakes heading into Q4. Interestingly, Matt Smith's Deep Basin Capital dumped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, totaling about $5.5 million in stock. Ian Simm's fund, Impax Asset Management, also said goodbye to its stock, about $3.3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Antero Resources Corp (NYSE:AR) but similarly valued. We will take a look at Century Communities, Inc (NYSE:CCS), Luminex Corporation (NASDAQ:LMNX), Intrexon Corp (NASDAQ:XON), and Palomar Holdings, Inc. (NASDAQ:PLMR). This group of stocks' market valuations are closest to AR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCS,23,158792,6 LMNX,14,151826,-3 XON,12,61604,2 PLMR,13,52613,5 Average,15.5,106209,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $355 million in AR's case. Century Communities, Inc (NYSE:CCS) is the most popular stock in this table. On the other hand Intrexon Corp (NASDAQ:XON) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Antero Resources Corp (NYSE:AR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 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 -69.6% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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