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Should I Avoid Permian Basin Royalty Trust (PBT)?

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After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Permian Basin Royalty Trust (NYSE:PBT).

Permian Basin Royalty Trust (NYSE:PBT) shareholders have witnessed a decrease in hedge fund interest in recent months. Permian Basin Royalty Trust (NYSE:PBT) was in 3 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. Our calculations also showed that PBT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Price MFP Investors
Michael Price MFP Investors

Michael Price of MFP Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to take a look at the recent hedge fund action surrounding Permian Basin Royalty Trust (NYSE:PBT).

Hedge fund activity in Permian Basin Royalty Trust (NYSE:PBT)

At the end of September, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PBT over the last 21 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Murray Stahl's Horizon Asset Management has the number one position in Permian Basin Royalty Trust (NYSE:PBT), worth close to $0.9 million, amounting to less than 0.1%% of its total 13F portfolio. On Horizon Asset Management's heels is Ken Griffin of Citadel Investment Group, with a $0 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism include Michael Price's MFP Investors, and . In terms of the portfolio weights assigned to each position Horizon Asset Management allocated the biggest weight to Permian Basin Royalty Trust (NYSE:PBT), around 0.04% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to PBT.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified PBT as a viable investment and initiated a position in the stock.

Let's check out hedge fund activity in other stocks similar to Permian Basin Royalty Trust (NYSE:PBT). These stocks are Envela Corporation (NYSE:ELA), Erytech Pharma S.A. (NASDAQ:ERYP), CONSOL Energy Inc. (NYSE:CEIX), Civeo Corporation (NYSE:CVEO), Esquire Financial Holdings, Inc. (NASDAQ:ESQ), Lumos Pharma, Inc. (NASDAQ:LUMO), and Babcock & Wilcox Enterprises Inc (NYSE:BW). This group of stocks' market caps match PBT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ELA,1,1782,-1 ERYP,2,4002,0 CEIX,10,10430,-3 CVEO,12,42395,-2 ESQ,4,12212,-1 LUMO,5,26303,0 BW,4,6173,-2 Average,5.4,14757,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.4 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $1 million in PBT's case. Civeo Corporation (NYSE:CVEO) is the most popular stock in this table. On the other hand Envela Corporation (NYSE:ELA) is the least popular one with only 1 bullish hedge fund positions. Permian Basin Royalty Trust (NYSE:PBT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PBT is 21.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on PBT as the stock returned 21.7% since the end of the third quarter (through 11/23) and outperformed the market by an even larger margin.

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

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