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Were Hedge Funds Right About Devon Energy Corporation (DVN)?

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  • DVN

In this article we will check out the progression of hedge fund sentiment towards Devon Energy Corporation (NYSE:DVN) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Devon Energy Corporation (NYSE:DVN) has experienced a decrease in activity from the world's largest hedge funds in recent months. Devon Energy Corporation (NYSE:DVN) was in 50 hedge funds' portfolios at the end of June. The all time high for this statistic is 61. There were 52 hedge funds in our database with DVN holdings at the end of March. Our calculations also showed that DVN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MOORE GLOBAL INVESTMENTS
MOORE GLOBAL INVESTMENTS

Louis Bacon Moore of Moore Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let's view the key hedge fund action regarding Devon Energy Corporation (NYSE:DVN).

Do Hedge Funds Think DVN Is A Good Stock To Buy Now?

At the end of June, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 45 hedge funds with a bullish position in DVN a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Phill Gross and Robert Atchinson's Adage Capital Management has the most valuable position in Devon Energy Corporation (NYSE:DVN), worth close to $219 million, amounting to 0.4% of its total 13F portfolio. The second largest stake is held by Permian Investment Partners, managed by Alex Duran and Scott Hendrickson, which holds a $184.7 million position; 19.1% of its 13F portfolio is allocated to the company. Other peers that hold long positions include Ken Fisher's Fisher Asset Management, Leon Cooperman's Omega Advisors and Robert Bishop's Impala Asset Management. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to Devon Energy Corporation (NYSE:DVN), around 19.12% of its 13F portfolio. Alden Global Capital is also relatively very bullish on the stock, setting aside 17.74 percent of its 13F equity portfolio to DVN.

Since Devon Energy Corporation (NYSE:DVN) has witnessed falling interest from the smart money, logic holds that there was a specific group of hedge funds who were dropping their full holdings last quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP dropped the biggest investment of the "upper crust" of funds watched by Insider Monkey, comprising about $119.2 million in stock. Zach Schreiber's fund, Point State Capital, also said goodbye to its stock, about $109.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Devon Energy Corporation (NYSE:DVN) but similarly valued. We will take a look at Albemarle Corporation (NYSE:ALB), Tradeweb Markets Inc. (NASDAQ:TW), Qualtrics International Inc. (NASDAQ:XM), Ubiquiti Inc. (NYSE:UI), Citizens Financial Group Inc (NYSE:CFG), Restaurant Brands International Inc (NYSE:QSR), and The Cooper Companies, Inc. (NYSE:COO). All of these stocks' market caps are closest to DVN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALB,28,165344,-3 TW,15,164110,-11 XM,37,2430220,0 UI,23,285947,4 CFG,36,402274,-5 QSR,22,2007862,-4 COO,33,1150171,-10 Average,27.7,943704,-4.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $944 million. That figure was $1039 million in DVN's case. Qualtrics International Inc. (NASDAQ:XM) is the most popular stock in this table. On the other hand Tradeweb Markets Inc. (NASDAQ:TW) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Devon Energy Corporation (NYSE:DVN) is more popular among hedge funds. Our overall hedge fund sentiment score for DVN is 77.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 29.6% in 2021 through November 5th but still managed to beat the market by 3.1 percentage points. Hedge funds were also right about betting on DVN as the stock returned 51.9% since the end of June (through 11/5) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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