Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: HighPoint Resources Corporation (NYSE:HPR).
HighPoint Resources Corporation (NYSE:HPR) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds' portfolios at the end of the first quarter of 2019. At the end of this article we will also compare HPR to other stocks including Hometrust Bancshares Inc (NASDAQ:HTBI), Gilat Satellite Networks Ltd. (NASDAQ:GILT), and Vishay Precision Group Inc (NYSE:VPG) to get a better sense of its popularity.
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.
Let's take a glance at the new hedge fund action surrounding HighPoint Resources Corporation (NYSE:HPR).
How have hedgies been trading HighPoint Resources Corporation (NYSE:HPR)?
At Q1's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HPR over the last 15 quarters. So, let's check out 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, Renaissance Technologies, managed by Jim Simons, holds the number one position in HighPoint Resources Corporation (NYSE:HPR). Renaissance Technologies has a $17.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Divisar Capital, managed by Steven Baughman, which holds a $16.3 million position; the fund has 5.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions encompass Joe Huber's Huber Capital Management, Brett Hendrickson's Nokomis Capital and Chuck Royce's Royce & Associates.
Due to the fact that HighPoint Resources Corporation (NYSE:HPR) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of money managers that elected to cut their full holdings last quarter. Intriguingly, Cliff Asness's AQR Capital Management sold off the biggest investment of the 700 funds tracked by Insider Monkey, valued at close to $0.4 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dropped about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as HighPoint Resources Corporation (NYSE:HPR) but similarly valued. We will take a look at Hometrust Bancshares Inc (NASDAQ:HTBI), Gilat Satellite Networks Ltd. (NASDAQ:GILT), Vishay Precision Group Inc (NYSE:VPG), and Waterstone Financial, Inc. (NASDAQ:WSBF). This group of stocks' market caps are similar to HPR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HTBI,12,66553,3 GILT,2,25518,0 VPG,11,128808,-2 WSBF,11,76446,2 Average,9,74331,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $60 million in HPR's case. Hometrust Bancshares Inc (NASDAQ:HTBI) is the most popular stock in this table. On the other hand Gilat Satellite Networks Ltd. (NASDAQ:GILT) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks HighPoint Resources Corporation (NYSE:HPR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately HPR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HPR were disappointed as the stock returned -23.1% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.