Were Hedge Funds Right About Buying Imperial Oil Limited (IMO)?

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 first 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 4.5 years and analyze what the smart money thinks of Imperial Oil Limited (NYSE:IMO) based on that data and determine whether they were really smart about the stock.

Imperial Oil Limited (NYSE:IMO) was in 13 hedge funds’ portfolios at the end of March. IMO has seen an increase in hedge fund interest in recent months. There were 10 hedge funds in our database with IMO holdings at the end of the previous quarter. Our calculations also showed that IMO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 58 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.

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 PayPal alternatives for international payments to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a peek at the key hedge fund action encompassing Imperial Oil Limited (NYSE:IMO).

How are hedge funds trading Imperial Oil Limited (NYSE:IMO)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards IMO 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.

Among these funds, Heathbridge Capital Management held the most valuable stake in Imperial Oil Limited (NYSE:IMO), which was worth $16 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $10.5 million worth of shares. GLG Partners, Citadel Investment Group, and D E Shaw 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 Heathbridge Capital Management allocated the biggest weight to Imperial Oil Limited (NYSE:IMO), around 4.3% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to IMO.

As industrywide interest jumped, key money managers have jumped into Imperial Oil Limited (NYSE:IMO) headfirst. Heathbridge Capital Management, managed by Robert Richards, initiated the largest position in Imperial Oil Limited (NYSE:IMO). Heathbridge Capital Management had $16 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Israel Englander’s Millennium Management, and Joel Greenblatt’s Gotham Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Imperial Oil Limited (NYSE:IMO) but similarly valued. We will take a look at Magellan Midstream Partners, L.P. (NYSE:MMP), Franklin Resources, Inc. (NYSE:BEN), WPP Plc (NASDAQ:WPP), and Lyft, Inc. (NASDAQ:LYFT). All of these stocks’ market caps match IMO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $201 million. That figure was $38 million in IMO’s case. Franklin Resources, Inc. (NYSE:BEN) is the most popular stock in this table. On the other hand WPP Plc (NASDAQ:WPP) is the least popular one with only 5 bullish hedge fund positions. Imperial Oil Limited (NYSE:IMO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on IMO as the stock returned 41% during the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.