Did Hedge Funds Make The Right Call On Suncor Energy Inc. (SU)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Suncor Energy Inc. (NYSE:SU) based on that data and determine whether they were really smart about the stock.

Is Suncor Energy Inc. (NYSE:SU) the right investment to pursue these days? The smart money was getting less bullish. The number of bullish hedge fund bets were trimmed by 9 lately. Our calculations also showed that SU 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). SU was in 30 hedge funds’ portfolios at the end of the first quarter of 2020. There were 39 hedge funds in our database with SU positions at the end of the previous quarter.

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. Keeping this in mind let’s view the key hedge fund action surrounding Suncor Energy Inc. (NYSE:SU).

Hedge fund activity in Suncor Energy Inc. (NYSE:SU)

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in SU a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Berkshire Hathaway held the most valuable stake in Suncor Energy Inc. (NYSE:SU), which was worth $236.2 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $134.9 million worth of shares. D E Shaw, Citadel Investment Group, and Arrowstreet Capital 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 Lyrical Asset Management allocated the biggest weight to Suncor Energy Inc. (NYSE:SU), around 3.31% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, dishing out 2.6 percent of its 13F equity portfolio to SU.

Since Suncor Energy Inc. (NYSE:SU) has experienced declining sentiment from hedge fund managers, logic holds that there was a specific group of money managers who sold off their positions entirely last quarter. Interestingly, Brian Ashford-Russell and Tim Woolley’s Polar Capital dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling about $37.8 million in stock, and Robert Richards’s Heathbridge Capital Management was right behind this move, as the fund dumped about $30.8 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 9 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Suncor Energy Inc. (NYSE:SU) but similarly valued. We will take a look at Republic Services, Inc. (NYSE:RSG), IHS Markit Ltd. (NASDAQ:INFO), eBay Inc (NASDAQ:EBAY), and Telefonica S.A. (NYSE:TEF). All of these stocks’ market caps resemble SU’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1245 million. That figure was $766 million in SU’s case. eBay Inc (NASDAQ:EBAY) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 7 bullish hedge fund positions. Suncor Energy Inc. (NYSE:SU) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately SU wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SU investors were disappointed as the stock returned 7.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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