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2019 Review: Top Hedge Fund Stocks vs. EQT Corporation (EQT)

Abigail Fisher

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That's a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

EQT Corporation (NYSE:EQT) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 35 hedge funds' portfolios at the end of September. At the end of this article we will also compare EQT to other stocks including Gol Linhas Aereas Inteligentes SA (NYSE:GOL), Enphase Energy Inc (NASDAQ:ENPH), and Rattler Midstream LP (NASDAQ:RTLR) to get a better sense of its popularity.

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 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 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.

[caption id="attachment_735641" align="aligncenter" width="473"] Michael Lowenstein of Kensico Capital[/caption]

Michael Lowenstein Kensico Capital

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his 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. With all of this in mind we're going to take a glance at the fresh hedge fund action regarding EQT Corporation (NYSE:EQT).

Hedge fund activity in EQT Corporation (NYSE:EQT)

At Q3's end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EQT over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in EQT Corporation (NYSE:EQT) was held by Kensico Capital, which reported holding $98.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $92 million position. Other investors bullish on the company included Firefly Value Partners, Deep Basin Capital, and Bridgewater Associates. In terms of the portfolio weights assigned to each position SIR Capital Management allocated the biggest weight to EQT Corporation (NYSE:EQT), around 6.48% of its 13F portfolio. Firefly Value Partners is also relatively very bullish on the stock, designating 6.38 percent of its 13F equity portfolio to EQT.

Due to the fact that EQT Corporation (NYSE:EQT) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedge funds who sold off their full holdings in the third quarter. Interestingly, David Costen Haley's HBK Investments dumped the largest stake of the 750 funds watched by Insider Monkey, valued at an estimated $79.1 million in stock. Anand Parekh's fund, Alyeska Investment Group, also dropped its stock, about $15.5 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks similar to EQT Corporation (NYSE:EQT). These stocks are Gol Linhas Aereas Inteligentes SA (NYSE:GOL), Enphase Energy Inc (NASDAQ:ENPH), Rattler Midstream LP (NASDAQ:RTLR), and Manchester United PLC (NYSE:MANU). This group of stocks' market caps are similar to EQT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GOL,11,194286,3 ENPH,32,289899,12 RTLR,11,163347,-9 MANU,11,32460,1 Average,16.25,169998,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $170 million. That figure was $442 million in EQT's case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand Gol Linhas Aereas Inteligentes SA (NYSE:GOL) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks EQT Corporation (NYSE:EQT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately EQT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EQT were disappointed as the stock returned -41.9% so far in 2019 (through 12/23) 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 already 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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