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 over the past few 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 hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards China Petroleum & Chemical Corp (NYSE:SNP).
China Petroleum & Chemical Corp (NYSE:SNP) has seen a decrease in enthusiasm from smart money of late. SNP was in 13 hedge funds’ portfolios at the end of the third quarter of 2018. There were 14 hedge funds in our database with SNP positions at the end of the previous quarter. Our calculations also showed that SNP isn’t among the 30 most popular stocks among hedge funds.
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 flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s take a look at the fresh hedge fund action regarding China Petroleum & Chemical Corp (NYSE:SNP).
How are hedge funds trading China Petroleum & Chemical Corp (NYSE:SNP)?
Heading into the fourth quarter of 2018, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the second quarter of 2018. On the other hand, there were a total of 11 hedge funds with a bullish position in SNP at the beginning of this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
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The largest stake in China Petroleum & Chemical Corp (NYSE:SNP) was held by Renaissance Technologies, which reported holding $159.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $81.8 million position. Other investors bullish on the company included LMR Partners, Two Sigma Advisors, and Sensato Capital Management.
Since China Petroleum & Chemical Corp (NYSE:SNP) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds who were dropping their positions entirely last quarter. At the top of the heap, Israel Englander’s Millennium Management dropped the biggest investment of the 700 funds followed by Insider Monkey, comprising about $8.9 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund sold off about $4.9 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as China Petroleum & Chemical Corp (NYSE:SNP) but similarly valued. These stocks are Union Pacific Corporation (NYSE:UNP), salesforce.com, inc. (NYSE:CRM), BHP Billiton plc (NYSE:BBL), and Royal Bank of Canada (NYSE:RY). This group of stocks’ market caps resemble SNP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UNP | 53 | 4921725 | 4 |
| CRM | 86 | 5615448 | 4 |
| BBL | 16 | 814748 | 2 |
| RY | 17 | 901758 | 4 |
| Average | 43 | 3063420 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $3.06 billion. That figure was $284 million in SNP’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand BHP Billiton plc (NYSE:BBL) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks China Petroleum & Chemical Corp (NYSE:SNP) is even less popular than BBL. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
