We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Devon Energy Corp (NYSE:DVN).
Is Devon Energy Corp (NYSE:DVN) a healthy stock for your portfolio? Prominent investors are getting more bullish. The number of long hedge fund positions increased by 3 recently. Our calculations also showed that DVN 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.
[caption id="attachment_26345" align="aligncenter" width="600"] Paul Singer of Elliott Management[/caption]
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. We're going to go over the latest hedge fund action surrounding Devon Energy Corp (NYSE:DVN).
What have hedge funds been doing with Devon Energy Corp (NYSE:DVN)?
Heading into the fourth quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DVN 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, Elliott Management was the largest shareholder of Devon Energy Corp (NYSE:DVN), with a stake worth $421.7 million reported as of the end of September. Trailing Elliott Management was Citadel Investment Group, which amassed a stake valued at $173.4 million. Renaissance Technologies, Diamond Hill Capital, and GLG Partners 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 Devon Energy Corp (NYSE:DVN), around 4.16% of its portfolio. Elliott Management is also relatively very bullish on the stock, dishing out 3.51 percent of its 13F equity portfolio to DVN.
Consequently, specific money managers were breaking ground themselves. Marshall Wace, managed by Paul Marshall and Ian Wace, established the most outsized position in Devon Energy Corp (NYSE:DVN). Marshall Wace had $19.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $9.1 million investment in the stock during the quarter. The following funds were also among the new DVN investors: Sara Nainzadeh's Centenus Global Management, Lee Ainslie's Maverick Capital, and Paul Tudor Jones's Tudor Investment Corp.
Let's also examine hedge fund activity in other stocks similar to Devon Energy Corp (NYSE:DVN). We will take a look at Erie Indemnity Company (NASDAQ:ERIE), Shaw Communications Inc (NYSE:SJR), American Financial Group, Inc. (NYSE:AFG), and Huazhu Group Limited (NASDAQ:HTHT). This group of stocks' market values are similar to DVN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ERIE,19,83890,7 SJR,12,270319,0 AFG,24,421046,2 HTHT,16,192637,2 Average,17.75,241973,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $242 million. That figure was $1276 million in DVN's case. American Financial Group, Inc. (NYSE:AFG) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Devon Energy Corp (NYSE:DVN) is more popular among hedge funds. 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 DVN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DVN were disappointed as the stock returned -9% 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.