Why Did Balyasny Bet on Chesapeake Energy?



Balyasny bet big on Chesapeake Energy

Hedge funds with notable positions in Chesapeake Energy (CHK), in relation to their overall portfolio, bet heavily on the company in 4Q14. Energy producers like Chesapeake Energy are highly correlated with natural gas prices. The question that arises is whether a bet on Chesapeake Energy is really a bet on natural gas prices, stock price reversion, or something more company specific.

According to aggregated 13F data, of the top five managers, only one reduced its position in Chesapeake Energy—Mackenzie Financial. This is excluding activist investor Carl Icahn who conspicuously didn’t change his position in Chesapeake Energy. Balyasny was seventh with a brand new position in Chesapeake Energy worth an estimated $92 million at the time of the filing. This is the 13th largest position.

In this series, we’ll go through Chesapeake Energy’s scorecard over the last quarter to see if these bets paid off. We’ll take a deeper look into Chesapeake Energy’s current and longer-term drivers. We’ll also analyze Chesapeake Energy from the point of view of a multi-strategy fund. We’ll help answer the question of allocating to Chesapeake Energy versus other modes of energy exposure.

Balyasny’s other top new purchases

Other new positions initiated by Balyasny in the fourth quarter were Cummins (CMI) and Covidien Plc (COV).

To gain diversified exposure to the energy and industrials sectors, investors can consider ETFs like the SPDR S&P Oil & Gas (XOP) and the Industrials Select (XLI), respectively. XOP’s YTD (year-to-date) return as of May 1, 2015, was 8.29% and XLI’s was -0.98%.

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