Is Marathon Petroleum Corp (NYSE:MPC) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Marathon Petroleum Corp (NYSE:MPC) was in 69 hedge funds’ portfolios at the end of December. MPC has experienced an increase in activity from the world’s largest hedge funds in recent months. There were 68 hedge funds in our database with MPC positions at the end of the previous quarter. Our calculations also showed that MPC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Paul Singer of Elliott Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s review the key hedge fund action regarding Marathon Petroleum Corp (NYSE:MPC).
How have hedgies been trading Marathon Petroleum Corp (NYSE:MPC)?
At the end of the fourth quarter, a total of 69 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 1% from the third quarter of 2019. By comparison, 72 hedge funds held shares or bullish call options in MPC 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.
More specifically, Elliott Management was the largest shareholder of Marathon Petroleum Corp (NYSE:MPC), with a stake worth $581.3 million reported as of the end of September. Trailing Elliott Management was D E Shaw, which amassed a stake valued at $314.9 million. Steadfast Capital Management, Iridian Asset Management, 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 Swift Run Capital Management allocated the biggest weight to Marathon Petroleum Corp (NYSE:MPC), around 10.83% of its 13F portfolio. Swift Run Capital Management is also relatively very bullish on the stock, designating 5.13 percent of its 13F equity portfolio to MPC.
Now, specific money managers were leading the bulls’ herd. Renaissance Technologies, initiated the largest position in Marathon Petroleum Corp (NYSE:MPC). Renaissance Technologies had $144.1 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also initiated a $44.3 million position during the quarter. The following funds were also among the new MPC investors: Paul Tudor Jones’s Tudor Investment Corp, Anand Parekh’s Alyeska Investment Group, and Frank Brosens’s Taconic Capital.
Let’s check out hedge fund activity in other stocks similar to Marathon Petroleum Corp (NYSE:MPC). We will take a look at Royal Bank of Scotland Group plc (NYSE:RBS), AFLAC Incorporated (NYSE:AFL), Orange (NYSE:ORAN), and Valero Energy Corporation (NYSE:VLO). This group of stocks’ market values are closest to MPC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RBS | 5 | 37114 | 0 |
| AFL | 32 | 511962 | 1 |
| ORAN | 2 | 606 | -2 |
| VLO | 46 | 636299 | 9 |
| Average | 21.25 | 296495 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $296 million. That figure was $2759 million in MPC’s case. Valero Energy Corporation (NYSE:VLO) is the most popular stock in this table. On the other hand Orange (NYSE:ORAN) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Marathon Petroleum Corp (NYSE:MPC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately MPC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MPC were disappointed as the stock returned -20% during the first two months of 2020 (through March 2nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
