We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards ONE Gas Inc (NYSE:OGS) and determine whether hedge funds skillfully traded this stock.
ONE Gas Inc (NYSE:OGS) investors should pay attention to an increase in support from the world's most elite money managers in recent months. ONE Gas Inc (NYSE:OGS) was in 20 hedge funds' portfolios at the end of June. The all time high for this statistics is 20. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 16 hedge funds in our database with OGS holdings at the end of March. Our calculations also showed that OGS isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Gelband of ExodusPoint Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox.Now we're going to take a look at the new hedge fund action surrounding ONE Gas Inc (NYSE:OGS).
How are hedge funds trading ONE Gas Inc (NYSE:OGS)?
At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in OGS a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Impax Asset Management held the most valuable stake in ONE Gas Inc (NYSE:OGS), which was worth $6.8 million at the end of the third quarter. On the second spot was Millennium Management which amassed $6.2 million worth of shares. GAMCO Investors, GLG Partners, and Winton Capital Management 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 Quantinno Capital allocated the biggest weight to ONE Gas Inc (NYSE:OGS), around 0.34% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to OGS.
As aggregate interest increased, key hedge funds were breaking ground themselves. Tudor Investment Corp, managed by Paul Tudor Jones, initiated the biggest position in ONE Gas Inc (NYSE:OGS). Tudor Investment Corp had $1 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $0.7 million investment in the stock during the quarter. The other funds with brand new OGS positions are Hoon Kim's Quantinno Capital, Matthew Hulsizer's PEAK6 Capital Management, and Greg Eisner's Engineers Gate Manager.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as ONE Gas Inc (NYSE:OGS) but similarly valued. We will take a look at Nevro Corp (NYSE:NVRO), Cameco Corporation (NYSE:CCJ), CMC Materials, Inc. (NASDAQ:CCMP), Qualys Inc (NASDAQ:QLYS), MSC Industrial Direct Co Inc (NYSE:MSM), Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC), and Iovance Biotherapeutics, Inc. (NASDAQ:IOVA). This group of stocks' market valuations match OGS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVRO,35,757082,4 CCJ,22,321965,-2 CCMP,23,163401,7 QLYS,27,168061,10 MSM,30,389200,7 PAC,7,103052,2 IOVA,43,1341814,4 Average,26.7,463511,4.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $464 million. That figure was $33 million in OGS's case. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC) is the least popular one with only 7 bullish hedge fund positions. ONE Gas Inc (NYSE:OGS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OGS is 39. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately OGS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OGS investors were disappointed as the stock returned -9.8% in the third 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.