Were Hedge Funds Right About Embracing Schlumberger Limited. (SLB)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Schlumberger Limited. (NYSE:SLB).

Schlumberger Limited. (NYSE:SLB) has seen an increase in enthusiasm from smart money recently. Schlumberger Limited. (NYSE:SLB) was in 53 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 61. There were 49 hedge funds in our database with SLB holdings at the end of March. Our calculations also showed that SLB isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a gander at the recent hedge fund action regarding Schlumberger Limited. (NYSE:SLB).

How are hedge funds trading Schlumberger Limited. (NYSE:SLB)?

At second quarter’s end, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SLB over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Schlumberger Limited. (NYSE:SLB), which was worth $244.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $84.6 million worth of shares. Point72 Asset Management, Millennium Management, and Renaissance Technologies 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 RIT Capital Partners allocated the biggest weight to Schlumberger Limited. (NYSE:SLB), around 3.56% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, earmarking 2.51 percent of its 13F equity portfolio to SLB.

Consequently, some big names were breaking ground themselves. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Schlumberger Limited. (NYSE:SLB). Holocene Advisors had $42.3 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $18 million investment in the stock during the quarter. The other funds with new positions in the stock are Matt Smith’s Deep Basin Capital, Anand Parekh’s Alyeska Investment Group, and Jacob Rothschild’s RIT Capital Partners.

Let’s also examine hedge fund activity in other stocks similar to Schlumberger Limited. (NYSE:SLB). We will take a look at Johnson Controls International plc (NYSE:JCI), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), RingCentral Inc (NYSE:RNG), PPG Industries, Inc. (NYSE:PPG), ANSYS, Inc. (NASDAQ:ANSS), and Okta, Inc. (NASDAQ:OKTA). All of these stocks’ market caps resemble SLB’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.1 hedge funds with bullish positions and the average amount invested in these stocks was $1517 million. That figure was $932 million in SLB’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 6 bullish hedge fund positions. Schlumberger Limited. (NYSE:SLB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SLB is 77. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately SLB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SLB were disappointed as the stock returned -15.7% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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