It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 35% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 WPX Energy Inc (NYSE:WPX).
Is WPX Energy Inc (NYSE:WPX) going to take off soon? Prominent investors are getting more optimistic. The number of bullish hedge fund positions advanced by 4 in recent months. Our calculations also showed that WPX isn't among the 30 most popular stocks among hedge funds.
In the 21st century investor’s toolkit there are numerous tools stock traders use to evaluate stocks. Some of the most innovative tools are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the best money managers can outperform the market by a solid margin (see the details here).
[caption id="attachment_258176" align="aligncenter" width="450"] Leon Cooperman of Omega Advisors[/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. Let's go over the new hedge fund action regarding WPX Energy Inc (NYSE:WPX).
How are hedge funds trading WPX Energy Inc (NYSE:WPX)?
Heading into the fourth quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 53 hedge funds with a bullish position in WPX a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Adage Capital Management was the largest shareholder of WPX Energy Inc (NYSE:WPX), with a stake worth $88.1 million reported as of the end of September. Trailing Adage Capital Management was Citadel Investment Group, which amassed a stake valued at $82.8 million. Millennium Management, Omega Advisors, and Diamond Hill 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 GeoSphere Capital Management allocated the biggest weight to WPX Energy Inc (NYSE:WPX), around 8.1% of its portfolio. SIR Capital Management is also relatively very bullish on the stock, designating 4.96 percent of its 13F equity portfolio to WPX.
Now, some big names were leading the bulls' herd. Rubric Capital Management, managed by David Rosen, established the largest position in WPX Energy Inc (NYSE:WPX). Rubric Capital Management had $6.7 million invested in the company at the end of the quarter. Guy Shahar's DSAM Partners also initiated a $4.8 million position during the quarter. The other funds with brand new WPX positions are Wayne Cooperman's Cobalt Capital Management, David Harding's Winton Capital Management, and Phil Frohlich's Prescott Group Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as WPX Energy Inc (NYSE:WPX) but similarly valued. These stocks are Landstar System, Inc. (NASDAQ:LSTR), Macerich Company (NYSE:MAC), Selective Insurance Group, Inc. (NASDAQ:SIGI), and W.R. Grace & Co. (NYSE:GRA). All of these stocks' market caps match WPX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LSTR,19,191180,-3 MAC,22,136466,1 SIGI,24,120207,10 GRA,38,1653754,2 Average,25.75,525402,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $525 million. That figure was $583 million in WPX's case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Landstar System, Inc. (NASDAQ:LSTR) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks WPX Energy Inc (NYSE:WPX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately WPX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WPX were disappointed as the stock returned -6.7% during the fourth quarter (through 11/22) 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.