Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost around 20%. Facebook, which was the second most popular stock, lost 14% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Southwestern Energy Company (NYSE:SWN) the right pick for your portfolio? Investors who are in the know are in a bearish mood. The number of long hedge fund bets were trimmed by 1 lately. Our calculations also showed that SWN isn't among the 30 most popular stocks among hedge funds. SWN was in 23 hedge funds' portfolios at the end of September. There were 24 hedge funds in our database with SWN positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's view the recent hedge fund action surrounding Southwestern Energy Company (NYSE:SWN).
What does the smart money think about Southwestern Energy Company (NYSE:SWN)?
At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. By comparison, 35 hedge funds held shares or bullish call options in SWN heading into this year. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Southwestern Energy Company (NYSE:SWN) was held by Stelliam Investment Management, which reported holding $145.4 million worth of stock at the end of September. It was followed by Millennium Management with a $136.3 million position. Other investors bullish on the company included AQR Capital Management, Fisher Asset Management, and Key Square Capital Management.
Since Southwestern Energy Company (NYSE:SWN) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there were a few hedgies who sold off their positions entirely heading into Q3. It's worth mentioning that Randall Yuen's Jafra Capital Management said goodbye to the largest stake of the 700 funds watched by Insider Monkey, comprising an estimated $2.7 million in stock, and Boaz Weinstein's Saba Capital was right behind this move, as the fund cut about $2.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds heading into Q3.
Let's now review hedge fund activity in other stocks similar to Southwestern Energy Company (NYSE:SWN). These stocks are Colony Capital Inc (NYSE:CLNY), Owens-Illinois Inc (NYSE:OI), AllianceBernstein Holding LP (NYSE:AB), and Ascendis Pharma A/S (NASDAQ:ASND). This group of stocks' market valuations are closest to SWN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLNY,25,432608,-3 OI,17,414672,1 AB,6,20685,-3 ASND,27,1398630,1 Average,18.75,566649,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $567 million. That figure was $535 million in SWN's case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand AllianceBernstein Holding LP (NYSE:AB) is the least popular one with only 6 bullish hedge fund positions. Southwestern Energy Company (NYSE:SWN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard ASND might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.