Did Hedge Funds Make The Right Call On Murphy USA Inc. (MUSA) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Murphy USA Inc. (NYSE:MUSA) and determine whether hedge funds skillfully traded this stock.

Murphy USA Inc. (NYSE:MUSA) has seen a decrease in hedge fund interest of late. MUSA was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 28 hedge funds in our database with MUSA holdings at the end of the previous quarter. Our calculations also showed that MUSA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to take a look at the key hedge fund action regarding Murphy USA Inc. (NYSE:MUSA).

How have hedgies been trading Murphy USA Inc. (NYSE:MUSA)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in MUSA a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Murphy USA Inc. (NYSE:MUSA), which was worth $57.3 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $47.5 million worth of shares. Arrowstreet Capital, GLG Partners, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to Murphy USA Inc. (NYSE:MUSA), around 0.23% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.21 percent of its 13F equity portfolio to MUSA.

Since Murphy USA Inc. (NYSE:MUSA) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of fund managers who were dropping their entire stakes heading into Q4. Intriguingly, Mario Gabelli’s GAMCO Investors sold off the biggest investment of all the hedgies followed by Insider Monkey, worth close to $7.7 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $3.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Murphy USA Inc. (NYSE:MUSA). We will take a look at AMN Healthcare Services Inc (NYSE:AMN), The Hain Celestial Group, Inc. (NASDAQ:HAIN), Appian Corporation (NASDAQ:APPN), and Farfetch Limited (NYSE:FTCH). This group of stocks’ market values resemble MUSA’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $390 million. That figure was $198 million in MUSA’s case. AMN Healthcare Services Inc (NYSE:AMN) is the most popular stock in this table. On the other hand Appian Corporation (NASDAQ:APPN) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Murphy USA Inc. (NYSE:MUSA) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on MUSA as the stock returned 33.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.