We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Whiting Petroleum Corporation (NYSE:WLL) and determine whether hedge funds skillfully traded this stock.
Whiting Petroleum Corporation (NYSE:WLL) investors should be aware of a decrease in enthusiasm from smart money lately. WLL was in 12 hedge funds' portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with WLL holdings at the end of the previous quarter. Our calculations also showed that WLL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 58 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.
[caption id="attachment_758446" align="aligncenter" width="393"] Michael Hintze of CQS Cayman LP[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a peek at the fresh hedge fund action surrounding Whiting Petroleum Corporation (NYSE:WLL).
What have hedge funds been doing with Whiting Petroleum Corporation (NYSE:WLL)?
At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in WLL over the last 18 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Renaissance Technologies has the number one position in Whiting Petroleum Corporation (NYSE:WLL), worth close to $1.7 million, amounting to less than 0.1%% of its total 13F portfolio. Coming in second is John Overdeck and David Siegel of Two Sigma Advisors, with a $0.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish consist of Israel Englander's Millennium Management, and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position GRT Capital Partners allocated the biggest weight to Whiting Petroleum Corporation (NYSE:WLL), around 0.11% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0016 percent of its 13F equity portfolio to WLL.
Seeing as Whiting Petroleum Corporation (NYSE:WLL) has faced declining sentiment from hedge fund managers, it's safe to say that there is a sect of fund managers who were dropping their full holdings by the end of the first quarter. Interestingly, Sander Gerber's Hudson Bay Capital Management cut the largest investment of all the hedgies watched by Insider Monkey, comprising close to $17.8 million in stock, and Michael Hintze's CQS Cayman LP was right behind this move, as the fund said goodbye to about $8.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the first quarter.
Let's go over hedge fund activity in other stocks similar to Whiting Petroleum Corporation (NYSE:WLL). These stocks are IEC Electronics Corp. (NASDAQ:IEC), Aware, Inc. (NASDAQ:AWRE), Milestone Scientific, Inc. (NYSE:MLSS), and AGBA Acquisition Limited (NASDAQ:AGBAU). All of these stocks' market caps resemble WLL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IEC,2,5924,0 AWRE,2,7625,0 MLSS,2,302,1 AGBAU,1,3965,-2 Average,1.75,4454,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 1.75 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $3 million in WLL's case. IEC Electronics Corp. (NASDAQ:IEC) is the most popular stock in this table. On the other hand AGBA Acquisition Limited (NASDAQ:AGBAU) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Whiting Petroleum Corporation (NYSE:WLL) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on WLL as the stock returned 68.7% in Q2 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.