Hedge Funds Are Ditching W&T Offshore, Inc. (WTI)
At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). 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 W&T Offshore, Inc. (NYSE:WTI) at the end of the first quarter and determine whether the smart money was really smart about this stock.
W&T Offshore, Inc. (NYSE:WTI) was in 11 hedge funds' portfolios at the end of March. WTI investors should pay attention to a decrease in hedge fund sentiment recently. There were 17 hedge funds in our database with WTI positions at the end of the previous quarter. Our calculations also showed that WTI isn't among the 30 most popular stocks among hedge funds (click for Q1 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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_26092" align="aligncenter" width="400"]
Joel Greenblatt of Gotham Asset Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a look at the recent hedge fund action regarding W&T Offshore, Inc. (NYSE:WTI).
How have hedgies been trading W&T Offshore, Inc. (NYSE:WTI)?
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -35% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WTI over the last 18 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the biggest position in W&T Offshore, Inc. (NYSE:WTI). Renaissance Technologies has a $12.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is GLG Partners, led by Noam Gottesman, holding a $2.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that hold long positions contain Ken Griffin's Citadel Investment Group, John Overdeck and David Siegel's Two Sigma Advisors and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position GLG Partners allocated the biggest weight to W&T Offshore, Inc. (NYSE:WTI), around 0.01% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to WTI.
Seeing as W&T Offshore, Inc. (NYSE:WTI) has experienced bearish sentiment from hedge fund managers, we can see that there were a few funds who sold off their entire stakes in the first quarter. Intriguingly, David Harding's Winton Capital Management sold off the biggest investment of all the hedgies followed by Insider Monkey, worth close to $2 million in stock. Ken Fisher's fund, Fisher Asset Management, also dropped its stock, about $1.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds in the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as W&T Offshore, Inc. (NYSE:WTI) but similarly valued. These stocks are Carter Bank & Trust (NASDAQ:CARE), Dynex Capital Inc (NYSE:DX), The First Bancorp, Inc. (NASDAQ:FNLC), and Park-Ohio Holdings Corp. (NASDAQ:PKOH). This group of stocks' market caps are similar to WTI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CARE,7,10648,2 DX,8,8262,0 FNLC,1,4787,0 PKOH,6,18429,-6 Average,5.5,10532,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $18 million in WTI's case. Dynex Capital Inc (NYSE:DX) is the most popular stock in this table. On the other hand The First Bancorp, Inc. (NASDAQ:FNLC) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks W&T Offshore, Inc. (NYSE:WTI) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on WTI as the stock returned 34.1% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
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