Were Hedge Funds Right About Oasis Petroleum Inc. (OAS)?
Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let's see whether Oasis Petroleum Inc. (NYSE:OAS) makes for a good investment at the moment.
Oasis Petroleum Inc. (NYSE:OAS) was in 17 hedge funds' portfolios at the end of December. OAS investors should pay attention to an increase in hedge fund interest lately. There were 15 hedge funds in our database with OAS positions at the end of the previous quarter. Our calculations also showed that OAS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a look at the recent hedge fund action regarding Oasis Petroleum Inc. (NYSE:OAS).
What have hedge funds been doing with Oasis Petroleum Inc. (NYSE:OAS)?
Heading into the first quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in OAS over the last 18 quarters. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Oasis Petroleum Inc. (NYSE:OAS), with a stake worth $38.6 million reported as of the end of September. Trailing Citadel Investment Group was D E Shaw, which amassed a stake valued at $14.4 million. Renaissance Technologies, Arrowstreet Capital, and Holocene Advisors 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 Think Investments allocated the biggest weight to Oasis Petroleum Inc. (NYSE:OAS), around 0.64% of its 13F portfolio. Ellington is also relatively very bullish on the stock, earmarking 0.6 percent of its 13F equity portfolio to OAS.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Oasis Petroleum Inc. (NYSE:OAS) headfirst. D E Shaw, managed by D. E. Shaw, established the largest position in Oasis Petroleum Inc. (NYSE:OAS). D E Shaw had $14.4 million invested in the company at the end of the quarter. Renaissance Technologies also made a $10.5 million investment in the stock during the quarter. The following funds were also among the new OAS investors: Brandon Haley's Holocene Advisors, Paul Tudor Jones's Tudor Investment Corp, and John Overdeck and David Siegel's Two Sigma Advisors.
Let's check out hedge fund activity in other stocks similar to Oasis Petroleum Inc. (NYSE:OAS). We will take a look at NextGen Healthcare, Inc. (NASDAQ:NXGN), Endo International plc (NASDAQ:ENDP), Renewable Energy Group Inc (NASDAQ:REGI), and CNX Midstream Partners LP (NYSE:CNXM). This group of stocks' market values match OAS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NXGN,16,25475,3 ENDP,17,294280,-2 REGI,21,222864,5 CNXM,5,19604,-1 Average,14.75,140556,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $98 million in OAS's case. Renewable Energy Group Inc (NASDAQ:REGI) is the most popular stock in this table. On the other hand CNX Midstream Partners LP (NYSE:CNXM) is the least popular one with only 5 bullish hedge fund positions. Oasis Petroleum Inc. (NYSE:OAS) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately OAS wasn't nearly as popular as these 10 stocks and hedge funds that were betting on OAS were disappointed as the stock returned -81.6% during the same time 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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