Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Schlumberger Limited. (NYSE:SLB).
Schlumberger Limited. (NYSE:SLB) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. SLB was in 47 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 53 hedge funds in our database with SLB positions at the end of the previous quarter. Our calculations also showed that SLB 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.
Ken Fisher of Fisher Asset 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. With all of this in mind we’re going to view the latest hedge fund action encompassing Schlumberger Limited. (NYSE:SLB).
What have hedge funds been doing with Schlumberger Limited. (NYSE:SLB)?
Heading into the first quarter of 2020, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the third quarter of 2019. On the other hand, there were a total of 52 hedge funds with a bullish position in SLB a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Schlumberger Limited. (NYSE:SLB), with a stake worth $495 million reported as of the end of September. Trailing Fisher Asset Management was International Value Advisers, which amassed a stake valued at $149.1 million. Citadel Investment Group, Orbis Investment Management, and Adage 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 Chiron Investment Management allocated the biggest weight to Schlumberger Limited. (NYSE:SLB), around 6.21% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, designating 6.11 percent of its 13F equity portfolio to SLB.
Because Schlumberger Limited. (NYSE:SLB) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedgies that decided to sell off their full holdings heading into Q4. Interestingly, Ray Dalio’s Bridgewater Associates sold off the largest position of all the hedgies monitored by Insider Monkey, totaling close to $16.5 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund dropped about $12.6 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 6 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to Schlumberger Limited. (NYSE:SLB). We will take a look at Ecolab Inc. (NYSE:ECL), Global Payments Inc (NYSE:GPN), Deere & Company (NYSE:DE), and The Sherwin-Williams Company (NYSE:SHW). This group of stocks’ market valuations are closest to SLB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ECL | 44 | 2301979 | 2 |
| GPN | 64 | 4063969 | -4 |
| DE | 50 | 1403325 | 9 |
| SHW | 55 | 1847137 | 4 |
| Average | 53.25 | 2404103 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.25 hedge funds with bullish positions and the average amount invested in these stocks was $2404 million. That figure was $1208 million in SLB’s case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand Ecolab Inc. (NYSE:ECL) is the least popular one with only 44 bullish hedge fund positions. Schlumberger Limited. (NYSE:SLB) 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 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 lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately SLB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SLB investors were disappointed as the stock returned -56.3% during the same time period 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.
