The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Chevron Corporation (NYSE:CVX) and find out how it is affected by hedge funds’ moves.
Chevron Corporation (NYSE:CVX) was in 48 hedge funds’ portfolios at the end of September. CVX has experienced an increase in hedge fund interest in recent months. There were 44 hedge funds in our database with CVX holdings at the end of the previous quarter. Our calculations also showed that CVX isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Phill Gross of Adage Capital Management
We’re going to view the new hedge fund action encompassing Chevron Corporation (NYSE:CVX).
What have hedge funds been doing with Chevron Corporation (NYSE:CVX)?
At Q3’s end, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the second quarter of 2019. On the other hand, there were a total of 56 hedge funds with a bullish position in CVX a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Chevron Corporation (NYSE:CVX) was held by Fisher Asset Management, which reported holding $612.3 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $311.6 million position. Other investors bullish on the company included Adage Capital Management, Diamond Hill Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position SIR Capital Management allocated the biggest weight to Chevron Corporation (NYSE:CVX), around 5.38% of its portfolio. Arosa Capital Management is also relatively very bullish on the stock, earmarking 2.25 percent of its 13F equity portfolio to CVX.
As aggregate interest increased, some big names have jumped into Chevron Corporation (NYSE:CVX) headfirst. Renaissance Technologies, initiated the biggest position in Chevron Corporation (NYSE:CVX). Renaissance Technologies had $57.5 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $55.5 million position during the quarter. The following funds were also among the new CVX investors: Brandon Haley’s Holocene Advisors, Vince Maddi and Shawn Brennan’s SIR Capital Management, and Matthew Tewksbury’s Stevens Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Chevron Corporation (NYSE:CVX) but similarly valued. These stocks are Wells Fargo & Company (NYSE:WFC), Merck & Co., Inc. (NYSE:MRK), The Boeing Company (NYSE:BA), and Cisco Systems, Inc. (NASDAQ:CSCO). This group of stocks’ market values are similar to CVX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WFC | 62 | 25231139 | -3 |
| MRK | 73 | 4568239 | 3 |
| BA | 78 | 3964531 | 4 |
| CSCO | 58 | 4154237 | 3 |
| Average | 67.75 | 9479537 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 67.75 hedge funds with bullish positions and the average amount invested in these stocks was $9480 million. That figure was $1776 million in CVX’s case. The Boeing Company (NYSE:BA) is the most popular stock in this table. On the other hand Cisco Systems, Inc. (NASDAQ:CSCO) is the least popular one with only 58 bullish hedge fund positions. Compared to these stocks Chevron Corporation (NYSE:CVX) is even less popular than CSCO. Hedge funds dodged a bullet by taking a bearish stance towards CVX. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately CVX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CVX investors were disappointed as the stock returned 1% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
