We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Scorpio Tankers Inc. (NYSE:STNG) based on those filings.
Is Scorpio Tankers Inc. (NYSE:STNG) the right investment to pursue these days? The smart money is becoming more confident. The number of bullish hedge fund bets advanced by 8 recently. Our calculations also showed that STNG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). STNG was in 33 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 25 hedge funds in our database with STNG positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the latest hedge fund action surrounding Scorpio Tankers Inc. (NYSE:STNG).
What does smart money think about Scorpio Tankers Inc. (NYSE:STNG)?
At Q4’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the previous quarter. The graph below displays the number of hedge funds with bullish position in STNG over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Hosking Partners held the most valuable stake in Scorpio Tankers Inc. (NYSE:STNG), which was worth $43.7 million at the end of the third quarter. On the second spot was Bayberry Capital Partners which amassed $26.5 million worth of shares. Citadel Investment Group, Rubric Capital Management, and Maplelane 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 Bayberry Capital Partners allocated the biggest weight to Scorpio Tankers Inc. (NYSE:STNG), around 12.29% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, designating 2.81 percent of its 13F equity portfolio to STNG.
As one would reasonably expect, key hedge funds have been driving this bullishness. Bayberry Capital Partners, managed by Angela Aldrich, initiated the largest position in Scorpio Tankers Inc. (NYSE:STNG). Bayberry Capital Partners had $26.5 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also made a $13.5 million investment in the stock during the quarter. The other funds with brand new STNG positions are Kamyar Khajavi’s MIK Capital, Richard Driehaus’s Driehaus Capital, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Scorpio Tankers Inc. (NYSE:STNG) but similarly valued. These stocks are John Wiley & Sons Inc (NYSE:JW), Seritage Growth Properties (NYSE:SRG), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), and Nu Skin Enterprises, Inc. (NYSE:NUS). All of these stocks’ market caps match STNG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JW | 21 | 81448 | 1 |
| SRG | 15 | 353030 | 1 |
| ARNA | 33 | 293454 | 3 |
| NUS | 22 | 231083 | -1 |
| Average | 22.75 | 239754 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $240 million. That figure was $234 million in STNG’s case. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is the most popular stock in this table. On the other hand Seritage Growth Properties (NYSE:SRG) is the least popular one with only 15 bullish hedge fund positions. Scorpio Tankers Inc. (NYSE:STNG) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately STNG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on STNG were disappointed as the stock returned -57.9% 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
