ETFs For Hedge Funds' Favorite Energy Stocks

It looks a daring bet at this point, but some well-known hedge funds see value in select energy stocks. Investors that want to participate in a potential energy sector rebound can gain access to several energy names being snatched up by hedge funds via exchange traded funds.

Williams Companies Inc WMB and Pioneer Natural Resources PXD are among the energy names being embraced by hedge funds.

“Seth Klarman of Baupost Group bought 898,063 shares in Texas shale explorer Pioneer during the second quarter while Richard Perry’s firm added 6.26 million shares of Williams, according to regulatory filings,” Bloomberg reported.

Several other hedge funds added shares of Williams, a potential takeover target, and Pioneer during the second quarter. Oklahoma-based Williams is the eighth-largest holding in the Energy Select Sector SPDR XLE, the larges equity-based energy ETF, at 3.5 percent of the fund's weight. Pioneer is XLE's 11th-largest holding at a weight of almost 3.3 percent, according to State Street data. 

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Bloomberg also reported that Point72 Asset Management, the firm that manages billionaire Steve Cohen’s investments, increased its stakes in Occidental Petroleum Corporation OXY and EOG Resources Inc. EOG during the second quarter. EOG and Occidental are XLE's fifth- and seventh-largest holdings, respectively, combining for 7.3 percent of the ETF's weight.

As for XLE, the number of shares held by 13F filers at the end of the second quarter fell almost 6.4 percent from the end of the first quarter. Forty-six 13F filers had XLE in their top 10 holdings at the end of June with 522 filers overall showing a position in the ETF, according to Whale Wisdom data. Sixty-three filers added a new position in XLE during the second quarter while 64 closed positions in the fund, according to Whale Wisdom. 

Over the past three months, XLE has tumbled 14 percent, but that is not nearly as bad as the 23.5 percent shed by the SPDR S&P Oil & Gas Exploration & Production ETF XOP. XOP's woes are not deterring professional investors.

XOP's shares outstanding among the 13F crowd surged 19.3 percent to 56.1 million at the end of June from the end of the first quarter, according to Whale Wisdom. Forty-seven 13F filers added to XOP positions in the second quarter, nearly 50 percent more than those that pared stakes in the ETF.

There is a “but.”

Part of that increase in shares out among 13F filers with an interest in XOP could be attributable to professional investors shorting the ETF. XOP is often one of the most heavily shorted ETFs and when short sellers borrow shares of an ETF to short, new shares are created in the same fashion as they are for buyers, giving the impression that the fund's shares outstanding tally is increasing.