Value and growth funds rushed into shares of Southwestern Energy Co. in the first quarter, snapping up enough of a stock that was trading near 52-week lows to offset a wider exit of institutional investors from the top 10 independent U.S. drillers.
The top two buyers of Southwestern shares in the first quarter were growth fund Millennium Management LLC and blended fund Key Group Holdings (Cayman) Ltd. Millennium quadrupled its holdings in Southwestern to 423.6 million shares, 4% of the company, while Key Group's new 9.2 million-share stake amounts to a little less than 2% of Southwestern's stock.
Minus the 33 million-share flow of investment into Southwestern, fund investors decreased their positions in the top 10 independent U.S. gas producers' stocks, an S&P Global Market Intelligence analysis of data from Form 13-F filings shows.
According to veteran gas analyst Subash Chandra at Guggenheim Securities LLC, investors lost patience with shale gas drillers borrowing to outspend their cash flows at the same time they were laying on expensive drilling plans to capture a mild rise in gas prices above $3/MMBtu. Coming into 2017, share prices for these independent producers rose as the companies hedged production volumes at prices above $3/MMBtu, but fund investors sold the drillers as the quarter went on without much serious winter weather to send gas prices higher.
"We believe the sector has been caught off guard by weak commodity prices but unprepared to alter growth plans conveyed just a quarter ago," Chanda told his clients May 18. "There is skepticism that the market's current taste for free cash flows and return-of-capital, apparent in the performance of [Cabot Oil & Gas Corp.] and [ConocoPhillips], will endure. But we believe this is more than a fad and that leverage will rival or exceed growth as a key investment parameter in all but the most bullish commodity scenarios."
Even though the Harris Associates LP value fund nearly doubled its stake in the country's second-largest gas producer, Chesapeake Energy Corp., and index funds managed by Vanguard Group added to their leading stakes in the Oklahoma shale driller, net institutional investment in Chesapeake declined by 2% in the quarter as hedge funds like Blue Ridge Capital LLC and PointState Capital LP sold off their entire stakes.
Noted short seller David Einhorn and his Greenlight Capital Inc. fund went even longer on the Pittsburgh-based coal-turned-gas company CONSOL Energy Inc., adding 7.4 million shares and increasing his stake in the company from 6.7% to 9.9%. Einhorn, who blasted shale oil drillers in 2015 for burning through money with little to show as crude prices sank ? "like using $50 bills to counterfeit $20 bills" ? already owns nearly half of the publicly traded outstanding units of the CONSOL-controlled master limited partnership CNX Coal Resources LP.
Hedge fund investor Stephen Mandel's Lone Pine Capital LLC more than tripled its holdings in Appalachian shale driller Rice Energy Inc. to nearly 325 million shares, 6.7% of Rice, in the first quarter. Mandel has not formally expressed interest in advising Rice's management about how to run the company.