Did Hedge Funds Make The Right Call On Valvoline Inc. (VVV) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Valvoline Inc. (NYSE:VVV) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Valvoline Inc. (NYSE:VVV) has experienced an increase in activity from the world’s largest hedge funds lately. VVV was in 39 hedge funds’ portfolios at the end of March. There were 27 hedge funds in our database with VVV holdings at the end of the previous quarter. Our calculations also showed that VVV 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.

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.

Paul Marshall of Marshall Wace

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. With all of this in mind we’re going to review the recent hedge fund action regarding Valvoline Inc. (NYSE:VVV).

What does smart money think about Valvoline Inc. (NYSE:VVV)?

Heading into the second quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 44% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VVV over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Valvoline Inc. (NYSE:VVV), which was worth $64.6 million at the end of the third quarter. On the second spot was Tensile Capital which amassed $41.2 million worth of shares. HG Vora Capital Management, D E Shaw, and Candlestick Capital 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 Tensile Capital allocated the biggest weight to Valvoline Inc. (NYSE:VVV), around 8.11% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, earmarking 3.83 percent of its 13F equity portfolio to VVV.

Now, some big names have been driving this bullishness. HG Vora Capital Management, managed by Parag Vora, created the most outsized position in Valvoline Inc. (NYSE:VVV). HG Vora Capital Management had $39.3 million invested in the company at the end of the quarter. Jack Woodruff’s Candlestick Capital Management also made a $27.6 million investment in the stock during the quarter. The other funds with new positions in the stock are John Smith Clark’s Southpoint Capital Advisors, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Greg Eisner’s Engineers Gate Manager.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Valvoline Inc. (NYSE:VVV) but similarly valued. These stocks are Compania Cervecerias Unidas S.A. (NYSE:CCU), Hutchison China MediTech Limited (NASDAQ:HCM), Bill.com Holdings, Inc. (NYSE:BILL), and Semtech Corporation (NASDAQ:SMTC). This group of stocks’ market caps resemble VVV’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $331 million in VVV’s case. Bill.com Holdings, Inc. (NYSE:BILL) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Valvoline Inc. (NYSE:VVV) 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 VVV as the stock returned 48.6% 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.