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Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at BP Prudhoe Bay Royalty Trust (NYSE:BPT) from the perspective of those elite funds.
BP Prudhoe Bay Royalty Trust (NYSE:BPT) has experienced an increase in hedge fund sentiment in recent months. BPT was in 5 hedge funds' portfolios at the end of the second quarter of 2019. There were 4 hedge funds in our database with BPT holdings at the end of the previous quarter. Our calculations also showed that BPT isn't among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's analyze the key hedge fund action surrounding BP Prudhoe Bay Royalty Trust (NYSE:BPT).
Hedge fund activity in BP Prudhoe Bay Royalty Trust (NYSE:BPT)
Heading into the third quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in BPT a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the number one position in BP Prudhoe Bay Royalty Trust (NYSE:BPT), worth close to $4 million, accounting for less than 0.1%% of its total 13F portfolio. On Arrowstreet Capital's heels is John Overdeck and David Siegel of Two Sigma Advisors, with a $1.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism include Ken Griffin's Citadel Investment Group, Ken Griffin's Citadel Investment Group and Paul Marshall and Ian Wace's Marshall Wace LLP.
Now, specific money managers were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, assembled the largest position in BP Prudhoe Bay Royalty Trust (NYSE:BPT). Citadel Investment Group had $0.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $0.3 million position during the quarter. The only other fund with a new position in the stock is Israel Englander's Millennium Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as BP Prudhoe Bay Royalty Trust (NYSE:BPT) but similarly valued. These stocks are Beazer Homes USA, Inc. (NYSE:BZH), StarTek, Inc. (NYSE:SRT), Investors Title Company (NASDAQ:ITIC), and Yintech Investment Holdings Limited (NASDAQ:YIN). This group of stocks' market caps are closest to BPT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BZH,7,25276,-2 SRT,3,8110,-4 ITIC,3,39506,-1 YIN,1,264,-1 Average,3.5,18289,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $6 million in BPT's case. Beazer Homes USA, Inc. (NYSE:BZH) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 1 bullish hedge fund positions. BP Prudhoe Bay Royalty Trust (NYSE:BPT) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BPT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BPT were disappointed as the stock returned -38.5% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
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