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Were Hedge Funds Right About Select Energy Services, Inc. (WTTR)?

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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Select Energy Services, Inc. (NYSE:WTTR).

Select Energy Services, Inc. (NYSE:WTTR) shareholders have witnessed an increase in hedge fund interest recently. Select Energy Services, Inc. (NYSE:WTTR) was in 17 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 14 hedge funds in our database with WTTR holdings at the end of December. Our calculations also showed that WTTR isn't among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Ian Wace Marshall Wace
Ian Wace Marshall Wace

Ian Wace of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. With all of this in mind we're going to take a peek at the latest hedge fund action regarding Select Energy Services, Inc. (NYSE:WTTR).

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

At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the fourth quarter of 2020. By comparison, 16 hedge funds held shares or bullish call options in WTTR a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Todd J. Kantor's Encompass Capital Advisors has the biggest position in Select Energy Services, Inc. (NYSE:WTTR), worth close to $8.4 million, comprising 0.7% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $6.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish consist of Vadim Rubinchik's Brightlight Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Mark Coe's Intrinsic Edge Capital. In terms of the portfolio weights assigned to each position 0 allocated the biggest weight to Select Energy Services, Inc. (NYSE:WTTR), around 2.37% of its 13F portfolio. 0 is also relatively very bullish on the stock, earmarking 0.66 percent of its 13F equity portfolio to WTTR.

With a general bullishness amongst the heavyweights, key money managers have jumped into Select Energy Services, Inc. (NYSE:WTTR) headfirst. Intrinsic Edge Capital, managed by Mark Coe, assembled the biggest position in Select Energy Services, Inc. (NYSE:WTTR). Intrinsic Edge Capital had $1.4 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $0.6 million position during the quarter. The other funds with brand new WTTR positions are Cliff Asness's AQR Capital Management, Donald Sussman's Paloma Partners, and Paul Marshall and Ian Wace's Marshall Wace LLP.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Select Energy Services, Inc. (NYSE:WTTR) but similarly valued. We will take a look at Angion Biomedica Corp. (NASDAQ:ANGN), New Senior Investment Group Inc (NYSE:SNR), Arrow Financial Corporation (NASDAQ:AROW), Kimball International Inc (NASDAQ:KBAL), Moneygram International Inc (NASDAQ:MGI), Independent Bank Corporation (NASDAQ:IBCP), and Amalgamated Financial Corp. (NASDAQ:AMAL). This group of stocks' market caps are similar to WTTR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANGN,10,42335,10 SNR,9,60856,-3 AROW,3,12108,-1 KBAL,16,47865,-2 MGI,21,93356,3 IBCP,12,41998,-2 AMAL,9,45173,1 Average,11.4,49099,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.4 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $28 million in WTTR's case. Moneygram International Inc (NASDAQ:MGI) is the most popular stock in this table. On the other hand Arrow Financial Corporation (NASDAQ:AROW) is the least popular one with only 3 bullish hedge fund positions. Select Energy Services, Inc. (NYSE:WTTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WTTR is 76.9. 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 gained 28.5% in 2021 through July 23rd and still beat the market by 10.1 percentage points. Hedge funds were also right about betting on WTTR, though not to the same extent, as the stock returned 13.1% since Q1 (through July 23rd) and outperformed the market as well.

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