It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds' favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Devon Energy Corp (NYSE:DVN) and compare its performance against hedge funds' favorite stocks.
Is Devon Energy Corp (NYSE:DVN) the right pick for your portfolio? The smart money is taking an optimistic view. The number of long hedge fund positions inched up by 3 lately. 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 at the end of this article for Q2 rankings).
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="alignnone" width="600"] Paul Singer of Elliott Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. 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 already gained 20 percent. With all of this in mind we're going to go over the recent hedge fund action encompassing Devon Energy Corp (NYSE:DVN).
Hedge fund activity in Devon Energy Corp (NYSE:DVN)
At Q3's end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on 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 review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Elliott Management held the most valuable stake in Devon Energy Corp (NYSE:DVN), which was worth $421.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $173.4 million worth of shares. 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 13F portfolio. Elliott Management is also relatively very bullish on the stock, setting aside 3.51 percent of its 13F equity portfolio to DVN.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Devon Energy Corp (NYSE:DVN) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the most valuable 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 initiated a $9.1 million position 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 now review hedge fund activity in other stocks similar to Devon Energy Corp (NYSE:DVN). These stocks are Erie Indemnity Company (NASDAQ:ERIE), Shaw Communications Inc (NYSE:SJR), American Financial Group (NYSE:AFG), and China Lodging Group, Limited (NASDAQ:HTHT). This group of stocks' market caps match DVN's market cap.
[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 (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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 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 18% 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.
Disclosure: None. This article was originally published at Insider Monkey.