Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in ConocoPhillips (NYSE:COP)? The smart money sentiment can provide an answer to this question.
ConocoPhillips (NYSE:COP) was in 62 hedge funds’ portfolios at the end of December. COP has seen a decrease in support from the world’s most elite money managers lately. There were 70 hedge funds in our database with COP positions at the end of the previous quarter. Our calculations also showed that COP 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.
David E. Shaw of D.E. Shaw
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. Keeping this in mind let’s take a glance at the fresh hedge fund action regarding ConocoPhillips (NYSE:COP).
Hedge fund activity in ConocoPhillips (NYSE:COP)
At Q4’s end, a total of 62 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in COP over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ConocoPhillips (NYSE:COP) was held by D E Shaw, which reported holding $625.4 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $280.2 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to ConocoPhillips (NYSE:COP), around 6.14% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, dishing out 4.25 percent of its 13F equity portfolio to COP.
Because ConocoPhillips (NYSE:COP) has faced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds who sold off their full holdings heading into Q4. It’s worth mentioning that Renaissance Technologies dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $68.5 million in stock. Doug Silverman and Alexander Klabin’s fund, Senator Investment Group, also sold off its stock, about $28.5 million worth. These moves are interesting, as total hedge fund interest dropped by 8 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as ConocoPhillips (NYSE:COP) but similarly valued. We will take a look at Chubb Limited (NYSE:CB), PNC Financial Services Group Inc. (NYSE:PNC), Banco Santander, S.A. (NYSE:SAN), and The Bank of Nova Scotia (NYSE:BNS). This group of stocks’ market values resemble COP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CB | 24 | 588256 | -3 |
| PNC | 42 | 2157090 | 0 |
| SAN | 21 | 637200 | 0 |
| BNS | 16 | 413736 | 0 |
| Average | 25.75 | 949071 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $949 million. That figure was $2438 million in COP’s case. PNC Financial Services Group Inc. (NYSE:PNC) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks ConocoPhillips (NYSE:COP) is more popular among hedge funds. 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 also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately COP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on COP were disappointed as the stock returned -23.8% during the first two months of 2020 (through March 2nd) 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.
