U.S. Markets closed

Is SM Energy Company (SM) Going To Burn These Hedge Funds ?

Nina Todic

Is SM Energy Company (NYSE:SM) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

SM Energy Company (NYSE:SM) has experienced a decrease in hedge fund sentiment recently. Our calculations also showed that SM 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.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the key hedge fund action regarding SM Energy Company (NYSE:SM).

Hedge fund activity in SM Energy Company (NYSE:SM)

Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the first quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in SM a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

No of Hedge Funds with SM Positions

According to Insider Monkey's hedge fund database, Israel Englander's Millennium Management has the largest position in SM Energy Company (NYSE:SM), worth close to $77.9 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $45.9 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism include Cliff Asness's AQR Capital Management, D. E. Shaw's D E Shaw and Renaissance Technologies.

Judging by the fact that SM Energy Company (NYSE:SM) has experienced declining sentiment from hedge fund managers, it's safe to say that there were a few money managers who sold off their full holdings in the second quarter. Intriguingly, Jeffrey Tannenbaum's Fir Tree dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, totaling about $9.6 million in stock. Steve Cohen's fund, Point72 Asset Management, also sold off its stock, about $7.9 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 3 funds in the second quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as SM Energy Company (NYSE:SM) but similarly valued. We will take a look at Accelerate Diagnostics Inc (NASDAQ:AXDX), Altus Midstream Company (NASDAQ:ALTM), Kite Realty Group Trust (NYSE:KRG), and Nexa Resources S.A. (NYSE:NEXA). This group of stocks' market values are similar to SM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AXDX,10,65894,-1 ALTM,7,20619,1 KRG,6,53962,0 NEXA,9,10148,-2 Average,8,37656,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $205 million in SM's case. Accelerate Diagnostics Inc (NASDAQ:AXDX) is the most popular stock in this table. On the other hand Kite Realty Group Trust (NYSE:KRG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks SM Energy Company (NYSE:SM) is more popular among hedge funds. 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 SM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SM were disappointed as the stock returned -22.6% 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 in Q3.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content