The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Permian Basin Royalty Trust (NYSE:PBT) based on those filings.
Permian Basin Royalty Trust (NYSE:PBT) investors should be aware of a decrease in hedge fund sentiment of late. PBT was in 3 hedge funds' portfolios at the end of the first quarter of 2020. There were 7 hedge funds in our database with PBT positions at the end of the previous quarter. Our calculations also showed that PBT 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 44 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_758440" align="aligncenter" width="400"] Michael Price of MFP Investors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to go over the new hedge fund action surrounding Permian Basin Royalty Trust (NYSE:PBT).
What does smart money think about Permian Basin Royalty Trust (NYSE:PBT)?
Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -57% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in PBT a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Horizon Asset Management held the most valuable stake in Permian Basin Royalty Trust (NYSE:PBT), which was worth $1.1 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $0.1 million worth of shares. MFP Investors was 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 Horizon Asset Management allocated the biggest weight to Permian Basin Royalty Trust (NYSE:PBT), around 0.05% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to PBT.
Seeing as Permian Basin Royalty Trust (NYSE:PBT) has experienced falling interest from the smart money, logic holds that there is a sect of hedgies who were dropping their positions entirely in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest stake of all the hedgies watched by Insider Monkey, comprising about $0.2 million in stock. Israel Englander's fund, Millennium Management, also dropped its stock, about $0.1 million worth. These transactions are important to note, as total hedge fund interest fell by 4 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Permian Basin Royalty Trust (NYSE:PBT) but similarly valued. These stocks are Perion Network Ltd (NASDAQ:PERI), AXT Inc (NASDAQ:AXTI), Baytex Energy Corp (NYSE:BTE), and vTv Therapeutics Inc (NASDAQ:VTVT). This group of stocks' market values are similar to PBT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PERI,7,21764,1 AXTI,7,10130,-1 BTE,6,2528,-6 VTVT,4,2757,1 Average,6,9295,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $1 million in PBT's case. Perion Network Ltd (NASDAQ:PERI) is the most popular stock in this table. On the other hand vTv Therapeutics Inc (NASDAQ:VTVT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Permian Basin Royalty Trust (NYSE:PBT) is even less popular than VTVT. Hedge funds clearly dropped the ball on PBT as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. A small number of hedge funds were also right about betting on PBT as the stock returned 35.4% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.