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In this article, via an analysis (based on the latest available institutional 13-F filings) of the investing activities of these world’s largest fund managers managing between $100 billion and over a trillion dollars, we identify the small-cap oil and gas exploration and production companies that are being accumulated and those being distributed by these mega managers. The investing activities of these mega funds in the large-cap oil and gas exploration and production companies is explored in a separate article. Furthermore, in our review last month of the investing activities of legendary or guru fund managers in the group, we suggested that the sector was over-sold, and that it was time for long-term investors, given the high velocity of the drop, to look for opportunities in the sector. Since that article, the average oil and gas exploration company is up about 25%.

The mega funds list includes prominent managers such as Wellington Management ($1.6 trillion in total assets under management), Vanguard Group ($1.4 trillion), Fidelity Investments ($640 billion), T Rowe Price ($330 billion), and Goldman Sachs Asset Management ($580 billion), among others.

We determined based on our analysis that mega fund managers are bullish on the small-cap oil and gas exploration and production companies. During the June quarter, these mega fund managers together added a net $830 million to their $42.25 billion prior quarter position in the group, selling $5.65 billion and buying $6.48 billion worth of stocks in the group. Furthermore, overall they are under-weight in the group by a factor of 0.7; that is taken together guru funds have invested 0.8% of their capital in the small-cap oil and gas exploration and production companies compared to their 1.2% weighting in the overall market.

The following are the small-cap oil and gas sector companies that these mega fund managers are most bearish about (see Table):

Forest Oil Corp. (NYSE:FST): FST is engaged in the exploration and production of oil, natural gas and natural gas liquids primarily in North America, with interest in the Texas Panhandle, the Western Canadian Sedimentary Basin in Alberta and British Columbia, the Eagle Ford Shale in South Texas, and the East Texas/ North Louisiana area. Mega funds cut a net $188 million from their $870 million prior quarter position, and taken together mega funds hold 38.1% of the outstanding shares, significantly greater than their 22.6% weighting in the group. The top sellers were Goldman Sachs Asset Management ($97 million) and AllianceBernstein ($34 million). Overall, 287 institutions hold 95.9% of FST shares, with Perkins Investment Management ($116 million) and Vanguard Group ($71 million) being the largest holders with 6.5% and 4.0% of the outstanding shares respectively.

Kodiak Oil & Gas (NYSE:KOG): Denver-based KOG is an independent energy exploration and development company focused on exploring, developing and producing oil and natural gas in the Williston and Greater Green River Basins in the U.S. Rocky Mountains. Mega funds cut a net $15 million from their $296 million prior quarter position, and taken together mega funds hold 17.7% of the outstanding shares, significantly less than their 22.6% weighting in the group. The top sellers were Fidelity Investments ($46 million) and Wells Fargo & Co. ($21 million). Overall, 147 institutions hold 59.1% of KOG shares, with Fidelity Investments ($107 million) and McKenzie Financial Group ($87 million) being the largest holders with 6.7% and 5.5% of the outstanding shares respectively. In our article last month on the investing activities of legendary or guru fund managers in the group, we noted that guru managers were also bearish on KOG.

The following are the small-cap oil and gas sector companies that these mega fund managers are most bullish about (see Table):

Quicksilver Resources (NYSE:KWK): KWK is engaged in the exploration and production of oil, natural gas and natural gas liquids in TX, CO, WY, MT, Alberta and British Columbia. It focuses primarily on unconventional reservoirs in fractured shales, coal beds, and tight sands. Its development and production areas include the Barnett Shale, the Cutbank Field in the southern Alberta Basin, and Horseshoe Canyon regions. Mega funds added a net $162 million to their $229 million prior quarter position, and taken together mega funds hold 29.5% of the outstanding shares, greater than their 26.4% weighting in the group. The top buyers were T Rowe Price ($167 million) and AllianceBernstein ($29 million), and the top holders were T Rowe Price ($167 million), Vanguard Group ($42 million) and State Street Corp. ($37 million). Overall, 209 institutions hold 71.7% of KWK shares, with SPO Advisory Corp. ($193 million) and T Rowe Price being the largest holders with 14.6% and 9.7% of the outstanding shares respectively.

Northern Oil & Gas Inc. (NYSEMKT:NOG): NOG is engaged in the exploration and production of oil and natural gas within the Williston Basin in ND and MT. Mega funds added a net $55 million to their $568 million prior quarter position, and taken together mega funds hold 36.7% of the outstanding shares, significantly greater than their 26.4% weighting in the group. The top buyers were Neuberger Berman Group ($25 million), T Rowe Price ($24 million) and Goldman Sachs Asset Management ($22 million), and the top holders were T Rowe Price ($153 million) and Fidelity Investments ($119 million). Overall, 213 institutions hold NOG shares, with T Rowe Price and Fidelity Investments being the largest holders with 13.4% and 6.2% of the outstanding shares respectively.

Hyperdynamics Corp. (NYSE:HDY): HDY is engaged in the exploration of oil and gas in the offshore coast of the Republic of Guinea in West Africa. Mega funds added a net $46 million to their $113 million prior quarter position, and taken together mega funds hold 19.0% of the outstanding shares, significantly less than their 26.4% weighting in the group. The top buyer was Vanguard Group ($21 million), and the top holders were Blackrock ($82 million) and Vanguard Group ($31 million). Overall, 116 institutions hold 37.7% of HDY shares, with Blackrock and Vanguard Group being the largest holders with 12.2% and 5.1% of the outstanding shares respectively.

Magnum Hunter Resources (NYSE:MHR): MHR is an independent oil and gas company engaged in the acquisition, drilling and production of oil and natural gas properties in the U.S., primarily in WV, ND, TX and LA. Mega funds added a net $54 million to their $88 million prior quarter position, and taken together mega funds hold 22.0% of the outstanding shares, significantly less than their 26.4% weighting in the group. The top buyer was Fidelity Investments ($35 million), and the top holders were Fidelity Investments ($41 million) and Vanguard Group ($21 million). Overall, 166 institutions hold 66.1% of MHR shares, with Fidelity Investments and Vanguard Group being the largest holders with 6.6% and 4.5% of the outstanding shares respectively. In our article last month on the investing activities of legendary or guru fund managers in the group, we noted that guru managers were also bullish on MHR.

ATP Oil & Gas (ATPG): ATPG is engaged in oil and natural gas exploration and production in the Gulf of Mexico, the United Kingdom and the Dutch sectors of the North Sea. Mega funds added a net $19 million to their $92 million prior quarter position, and taken together mega funds hold 20.3% of the outstanding shares, significantly less than their 26.4% weighting in the group. The top buyer was Credit Suisse AG ($18 million), and the top holders were Vanguard Group ($23 million) and Credit Suisse AG ($21 million). Overall, 130 institutions hold 57.0% of ATPG shares, with Aletheia Research & Management ($60 million) and Vanguard Group being the largest holders with 11.1% and 4.4% of the outstanding shares respectively.

GMX Resources (GMXR): GMXR is engaged in the exploration and production of oil and natural gas in the U.S. It has interests in two oil shale resources, including the Williston Basin in ND and MT, and the DJ Basin in WY. Mega funds added a net $3 million to their $15 million prior quarter position, and taken together mega funds hold 17.5% of the outstanding shares, significantly less than their 26.4% weighting in the group. The top holders were Barclays Global Investors ($5 million) and State Street Corp. ($3 million). Overall, 110 institutions hold 38.2% of GMXR shares, with Kennedy Capital Management and Barclays Global Investors being the largest holders with 5.0% and 3.2% of the outstanding shares respectively.

Cheniere Energy Inc. (NYSEMKT:LNG): LNG operates LNG receiving terminals and natural gas pipelines in the Gulf Coast of the U.S. including the Sabine Pass LNG terminal. We recently wrote about their landmark $8 deal for purchase of 3.5 million tons per annum (mtpa) of liquefied natural gas via its Sabine Pass terminal facility in LA, just prior to the stock jumping from the $8.30s when the article was published on October 26, to its close at $11.45 last Friday, after hitting an intra-day high of $12.56. Mega funds added a net $34 million to the $76 million prior quarter position, and taken together mega funds hold 12.3% of the outstanding shares, significantly less than their 26.4% weighting in the group. The top buyers were Vanguard Group ($9 million) and Wellington Capital Management ($7 million), and the top holder was Vanguard Group ($32 million). Overall, 135 institutions hold 74.7% of LNG shares, with Orbis Holdings Ltd. ($115 million) and Blackstone ($105 million) being the largest holders with 12.7% and 11.6% of the outstanding shares respectively.

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General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Small-Cap Energy Exploration Picks By The World's Largest Fund Managers