We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Permian Basin Royalty Trust (NYSE:PBT).
Is Permian Basin Royalty Trust (NYSE:PBT) an attractive investment right now? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund bets were trimmed by 1 recently. Our calculations also showed that PBT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PBT was in 5 hedge funds' portfolios at the end of the third quarter of 2019. There were 6 hedge funds in our database with PBT holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are viewed as worthless, outdated investment tools of years past. While there are greater than 8000 funds in operation at the moment, Our researchers choose to focus on the bigwigs of this group, around 750 funds. It is estimated that this group of investors have their hands on the majority of the hedge fund industry's total capital, and by paying attention to their highest performing investments, Insider Monkey has spotted various investment strategies that have historically beaten Mr. Market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_758437" align="aligncenter" width="600"] Michael Price of MFP Investors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a peek at the new hedge fund action encompassing Permian Basin Royalty Trust (NYSE:PBT).
What does smart money think about Permian Basin Royalty Trust (NYSE:PBT)?
At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in PBT a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of Permian Basin Royalty Trust (NYSE:PBT), with a stake worth $4.6 million reported as of the end of September. Trailing Royce & Associates was Horizon Asset Management, which amassed a stake valued at $2.4 million. Arrowstreet Capital, Two Sigma Advisors, and MFP Investors were 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 0.07% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to PBT.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified PBT as a viable investment and initiated a position in the stock.
Let's check out hedge fund activity in other stocks similar to Permian Basin Royalty Trust (NYSE:PBT). We will take a look at Immersion Corporation (NASDAQ:IMMR), Unity Bancorp, Inc. (NASDAQ:UNTY), Stratus Properties Inc. (NASDAQ:STRS), and Synchronoss Technologies, Inc. (NASDAQ:SNCR). This group of stocks' market caps are similar to PBT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMMR,16,91386,2 UNTY,4,35275,0 STRS,3,38208,0 SNCR,11,26828,3 Average,8.5,47924,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $8 million in PBT's case. Immersion Corporation (NASDAQ:IMMR) is the most popular stock in this table. On the other hand Stratus Properties Inc. (NASDAQ:STRS) is the least popular one with only 3 bullish hedge fund positions. Permian Basin Royalty Trust (NYSE:PBT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PBT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PBT investors were disappointed as the stock returned -28.2% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.