Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Talos Energy, Inc. (NYSE:TALO) based on that data.
Talos Energy, Inc. (NYSE:TALO) has seen a decrease in hedge fund interest recently. TALO was in 9 hedge funds' portfolios at the end of March. There were 14 hedge funds in our database with TALO holdings at the end of the previous quarter. Our calculations also showed that TALO 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_189632" align="aligncenter" width="400"] David Harding of Winton Capital Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind we're going to take a peek at the new hedge fund action surrounding Talos Energy, Inc. (NYSE:TALO).
What have hedge funds been doing with Talos Energy, Inc. (NYSE:TALO)?
Heading into the second quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in TALO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Talos Energy, Inc. (NYSE:TALO) was held by Deep Basin Capital, which reported holding $7.1 million worth of stock at the end of September. It was followed by Encompass Capital Advisors with a $5.2 million position. Other investors bullish on the company included Arrowstreet Capital, D E Shaw, and Winton Capital Management. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Talos Energy, Inc. (NYSE:TALO), around 1.79% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, designating 0.56 percent of its 13F equity portfolio to TALO.
Since Talos Energy, Inc. (NYSE:TALO) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few money managers that slashed their full holdings by the end of the first quarter. It's worth mentioning that George McCabe's Portolan Capital Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, valued at about $5.3 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also cut its stock, about $1.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 5 funds by the end of the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Talos Energy, Inc. (NYSE:TALO) but similarly valued. These stocks are ShotSpotter, Inc. (NASDAQ:SSTI), Graf Industrial Corp. (NYSE:GRAF), Heritage Insurance Holdings Inc (NYSE:HRTG), and Hingham Institution for Savings (NASDAQ:HIFS). This group of stocks' market valuations match TALO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSTI,5,16308,-1 GRAF,11,114571,-1 HRTG,7,19577,-1 HIFS,3,4293,0 Average,6.5,38687,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $15 million in TALO's case. Graf Industrial Corp. (NYSE:GRAF) is the most popular stock in this table. On the other hand Hingham Institution for Savings (NASDAQ:HIFS) is the least popular one with only 3 bullish hedge fund positions. Talos Energy, Inc. (NYSE:TALO) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on TALO as the stock returned 75.8% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.