Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Baytex Energy Corp (NYSE:BTE), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Baytex Energy Corp (NYSE:BTE) a bargain? Money managers are taking an optimistic view. The number of bullish hedge fund positions rose by 2 lately. Our calculations also showed that BTE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). BTE was in 9 hedge funds' portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with BTE holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_728376" align="aligncenter" width="473"] Jonathan Barrett of Luminus Management[/caption]
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. 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. We also rely on the best performing hedge funds' buy/sell signals. We're going to review the latest hedge fund action regarding Baytex Energy Corp (NYSE:BTE).
How are hedge funds trading Baytex Energy Corp (NYSE:BTE)?
At Q3's end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BTE over the last 17 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Luminus Management was the largest shareholder of Baytex Energy Corp (NYSE:BTE), with a stake worth $30.4 million reported as of the end of September. Trailing Luminus Management was Citadel Investment Group, which amassed a stake valued at $4.3 million. Royce & Associates, D E Shaw, and Renaissance Technologies 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 Signition LP allocated the biggest weight to Baytex Energy Corp (NYSE:BTE), around 2.34% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, setting aside 0.88 percent of its 13F equity portfolio to BTE.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Renaissance Technologies, created the most outsized position in Baytex Energy Corp (NYSE:BTE). Renaissance Technologies had $1 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $0.5 million investment in the stock during the quarter.
Let's now take a look at hedge fund activity in other stocks similar to Baytex Energy Corp (NYSE:BTE). We will take a look at Systemax Inc. (NYSE:SYX), Onto Innovation Inc. (NYSE:RTEC), Westlake Chemical Partners LP (NYSE:WLKP), and Monotype Imaging Holdings Inc. (NASDAQ:TYPE). This group of stocks' market values are similar to BTE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYX,11,20690,0 RTEC,10,75539,2 WLKP,4,5639,1 TYPE,21,140809,2 Average,11.5,60669,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $42 million in BTE's case. Monotype Imaging Holdings Inc. (NASDAQ:TYPE) is the most popular stock in this table. On the other hand Westlake Chemical Partners LP (NYSE:WLKP) is the least popular one with only 4 bullish hedge fund positions. Baytex Energy Corp (NYSE:BTE) 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 BTE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BTE investors were disappointed as the stock returned -27% 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.