Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and 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. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of CNOOC Limited (NYSE:CEO) based on that data.
CNOOC Limited (NYSE:CEO) investors should pay attention to a decrease in hedge fund sentiment recently. Our calculations also showed that CEO 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
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 let’s review the new hedge fund action surrounding CNOOC Limited (NYSE:CEO).
What does smart money think about CNOOC Limited (NYSE:CEO)?
At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in CEO 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, Renaissance Technologies was the largest shareholder of CNOOC Limited (NYSE:CEO), with a stake worth $159 million reported as of the end of September. Trailing Renaissance Technologies was Oaktree Capital Management, which amassed a stake valued at $59.4 million. Maverick Capital, Two Sigma Advisors, and AQR 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 Oaktree Capital Management allocated the biggest weight to CNOOC Limited (NYSE:CEO), around 1.12% of its 13F portfolio. Stamos Capital is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to CEO.
Due to the fact that CNOOC Limited (NYSE:CEO) has witnessed bearish sentiment from the smart money, logic holds that there exists a select few hedge funds who sold off their positions entirely by the end of the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at about $7.1 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund cut about $4.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to CNOOC Limited (NYSE:CEO). These stocks are The Estee Lauder Companies Inc (NYSE:EL), Automatic Data Processing (NASDAQ:ADP), Becton, Dickinson and Company (NYSE:BDX), and The TJX Companies, Inc. (NYSE:TJX). This group of stocks’ market values are similar to CEO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EL | 50 | 1697103 | 2 |
| ADP | 51 | 2821795 | -5 |
| BDX | 50 | 1447307 | -1 |
| TJX | 57 | 2182820 | 4 |
| Average | 52 | 2037256 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 52 hedge funds with bullish positions and the average amount invested in these stocks was $2037 million. That figure was $235 million in CEO’s case. The TJX Companies, Inc. (NYSE:TJX) is the most popular stock in this table. On the other hand The Estee Lauder Companies Inc (NYSE:EL) is the least popular one with only 50 bullish hedge fund positions. Compared to these stocks CNOOC Limited (NYSE:CEO) is even less popular than EL. Hedge funds dodged a bullet by taking a bearish stance towards CEO. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately CEO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CEO investors were disappointed as the stock returned -36.2% 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 so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
