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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Southwestern Energy Company (NYSE:SWN).
Southwestern Energy Company (NYSE:SWN) was in 22 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 48. SWN investors should pay attention to an increase in enthusiasm from smart money in recent months. There were 21 hedge funds in our database with SWN holdings at the end of December. Our calculations also showed that SWN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Nierenberg of Nierenberg Investment Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to review the latest hedge fund action regarding Southwestern Energy Company (NYSE:SWN).
Do Hedge Funds Think SWN Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in SWN over the last 23 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Kopernik Global Investors held the most valuable stake in Southwestern Energy Company (NYSE:SWN), which was worth $95.3 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $27.9 million worth of shares. Fisher Asset Management, Arctis Global, and Arrowstreet Capital 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 Kopernik Global Investors allocated the biggest weight to Southwestern Energy Company (NYSE:SWN), around 10.72% of its 13F portfolio. Arctis Global is also relatively very bullish on the stock, setting aside 2.58 percent of its 13F equity portfolio to SWN.
Consequently, some big names have been driving this bullishness. Graham Capital Management, managed by Kenneth Tropin, created the largest position in Southwestern Energy Company (NYSE:SWN). Graham Capital Management had $1.6 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also initiated a $1.6 million position during the quarter. The other funds with brand new SWN positions are David Nierenberg's Nierenberg Investment Management, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Paul Tudor Jones's Tudor Investment Corp.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Southwestern Energy Company (NYSE:SWN) but similarly valued. These stocks are Arcosa, Inc. (NYSE:ACA), Relay Therapeutics, Inc. (NASDAQ:RLAY), Commscope Holding Company Inc (NASDAQ:COMM), Independent Bank Group Inc (NASDAQ:IBTX), Freedom Holding Corp. (NASDAQ:FRHC), Viant Technology Inc. (NASDAQ:DSP), and Mr. Cooper Group Inc. (NASDAQ:COOP). This group of stocks' market caps match SWN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACA,17,220346,0 RLAY,20,636649,3 COMM,32,757950,-3 IBTX,9,74670,-5 FRHC,12,55186,4 DSP,14,70607,14 COOP,24,638610,2 Average,18.3,350574,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $207 million in SWN's case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand Independent Bank Group Inc (NASDAQ:IBTX) is the least popular one with only 9 bullish hedge fund positions. Southwestern Energy Company (NYSE:SWN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SWN is 48. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately SWN wasn't nearly as popular as these 5 stocks and hedge funds that were betting on SWN were disappointed as the stock returned 3.4% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.