BP plc (ADR) (NYSE:BP) investors should pay attention to a decrease in hedge fund sentiment in recent months.
In the eyes of most shareholders, hedge funds are viewed as worthless, outdated financial tools of the past. While there are more than 8000 funds with their doors open at present, we at Insider Monkey look at the upper echelon of this club, about 450 funds. Most estimates calculate that this group oversees the lion's share of all hedge funds' total asset base, and by watching their best picks, we have revealed a number of investment strategies that have historically beaten the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we've began to sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 25 percentage points in 6.5 month (check out a sample of our picks).
Just as important, positive insider trading activity is another way to break down the investments you're interested in. Just as you'd expect, there are a variety of reasons for a bullish insider to downsize shares of his or her company, but just one, very clear reason why they would initiate a purchase. Several empirical studies have demonstrated the valuable potential of this strategy if shareholders understand what to do (learn more here).
With all of this in mind, let's take a gander at the recent action surrounding BP plc (ADR) (NYSE:BP).
At year's end, a total of 42 of the hedge funds we track held long positions in this stock, a change of -16% from one quarter earlier. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes considerably.
Of the funds we track, Seth Klarman's Baupost Group had the biggest position in BP plc (ADR) (NYSE:BP), worth close to $455 million, accounting for 14.7% of its total 13F portfolio. Coming in second is Taconic Capital, managed by Frank Brosens, which held a $391 million position; 1% of its 13F portfolio is allocated to the stock. Other peers with similar optimism include Richard S. Pzena's Pzena Investment Management, Michael Larson's Bill & Melinda Gates Foundation Trust and Richard Perry's Perry Capital.
Seeing as BP plc (ADR) (NYSE:BP) has witnessed a declination in interest from the smart money, it's safe to say that there lies a certain "tier" of hedgies that elected to cut their positions entirely last quarter. At the top of the heap, Kenneth Mario Garschina's Mason Capital Management said goodbye to the biggest stake of the 450+ funds we key on, valued at an estimated $212 million in call options. Michael Messner's fund, Seminole Capital (Investment Mgmt), also dropped its stock, about $55 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 8 funds last quarter.
Insider buying is particularly usable when the primary stock in question has seen transactions within the past 180 days. Over the latest half-year time frame, BP plc (ADR) (NYSE:BP) has experienced zero unique insiders buying, and zero insider sales (see the details of insider trades here).
With the returns shown by our research, everyday investors must always keep an eye on hedge fund and insider trading sentiment, and BP plc (ADR) (NYSE:BP) is an important part of this process.
Insider Monkey's small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.