Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Ring Energy Inc (NYSE:REI) to find out whether it was one of their high conviction long-term ideas.
Ring Energy Inc (NYSE:REI) investors should be aware of a decrease in support from the world's most elite money managers lately. Our calculations also showed that REI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's view the latest hedge fund action encompassing Ring Energy Inc (NYSE:REI).
What have hedge funds been doing with Ring Energy Inc (NYSE:REI)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards REI over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Ken Fisher's Fisher Asset Management has the number one position in Ring Energy Inc (NYSE:REI), worth close to $0.6 million, accounting for less than 0.1%% of its total 13F portfolio. Coming in second is Marshall Wace, managed by Paul Marshall and Ian Wace, which holds a $0.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish encompass Frederick DiSanto's Ancora Advisors, David Harding's Winton Capital Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Ancora Advisors allocated the biggest weight to Ring Energy Inc (NYSE:REI), around 0.02% of its 13F portfolio. Corsair Capital Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to REI.
Because Ring Energy Inc (NYSE:REI) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedge funds who sold off their entire stakes heading into Q4. Interestingly, J. Carlo Cannell's Cannell Capital said goodbye to the largest position of all the hedgies watched by Insider Monkey, valued at about $1.7 million in stock, Renaissance Technologies was right behind this move, as the fund dumped about $1 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to Ring Energy Inc (NYSE:REI). These stocks are Abeona Therapeutics Inc (NASDAQ:ABEO), Kaixin Auto Holdings (NASDAQ:KXIN), Frequency Electronics, Inc. (NASDAQ:FEIM), and YRC Worldwide, Inc. (NASDAQ:YRCW). This group of stocks' market valuations resemble REI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ABEO,15,32925,-2 KXIN,3,203,-1 FEIM,3,11359,0 YRCW,6,6095,-2 Average,6.75,12646,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $2 million in REI's case. Abeona Therapeutics Inc (NASDAQ:ABEO) is the most popular stock in this table. On the other hand Kaixin Auto Holdings (NASDAQ:KXIN) is the least popular one with only 3 bullish hedge fund positions. Ring Energy Inc (NYSE:REI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on REI as the stock returned 17.1% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.