Oil and gas companies like Hess, Anadarko, and Apache have been darlings of the hedge fund community in recent years, favored by such prominent players as Elliott, Citadel, and D.E. Shaw. But a reversal in the U.S. energy sector, exacerbated by a sharp and recent drop in the price of crude oil and natural gas, has hit those stocks hard, raising questions about whether those hedge funds are abandoning them.
Since June 30, the date of the last round of hedge fund filings on what stocks they hold, Hess has fallen 24 percent, Anadarko 23 percent, and Apache 29 percent—performances that weren't helped by a huge market swoon in U.S. trading Wednesday.
As the Dow fell as much as 450 points early Wednesday afternoon, multiple hedge fund traders said that the market was in liquidation mode and had been for several days, with money managers looking to dump shares whenever the market rallied modestly.
In an interview earlier in the day on CNBC, Larry Fink, chief of the huge fund manager BlackRock, seemed to agree. "This is all more of the fast money moving out," he said, calling the downturn "a meltdown with a lot of hedge funds and fast money."
Concerns ranged from signs of weakness in Europe, where German consumer prices remained stagnant, and fears about Greece and other shakier continental economies rose, to further evidence of slowing growth in China. At the same time, evidence emerged that a health worker newly infected with the Ebola virus had taken a commercial flight after being in contact with a stricken patient. As Wednesday progressed, the sag in oil prices both domestically and overseas continued.
As of late Tuesday, none of the major hedge funds that owned the battered U.S. energy stocks indicated having sold them. Spokesmen for AQR and D.E. Shaw, whose investment decisions are largely governed by quantitative models, declined to comment, and people familiar with the strategies of Citadel, Elliott and Fir Tree, another fund manager with positions in both Hess and Anadarko, signaled that if anything, they were likely to be buying. (In fact, in Wednesday's selloff, the energy sector was the second-best performer on the S&P 500, though it is off nearly 14 percent in October and is the worst of the index's 10 sectors in 2014.)
"We don't comment on our P&L," said a spokesman for Fir Tree, using a shorthand for performance, or profit-and-loss, figures, "but Fir Tree has been active across the board buying."
A person familiar with the strategy at Citadel said that despite its holdings in at least five hard-hit energy stocks, its energy portfolio was up overall, thanks partly to hedges on the short side.
Someone familiar with the strategy at Elliott said that the fund was amply hedged on its exposure to Hess—a long-term investment the hedge-fund firm has used to advocate for change—and that the market downturn of late was a good opportunity to "selectively add" to some of Elliott's energy holdings, which also include Anadarko.