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 Tesoro Corporation (NYSE:TSO)? The smart money sentiment can provide an answer to this question.
Tesoro Corporation (NYSE:TSO) investors should be aware of an increase in hedge fund sentiment of late. There were 45 hedge funds with bullish positions in the stock on September 30th. At the end of this article we will also compare TSO to other stocks including Regions Financial Corporation (NYSE:RF), Lincoln National Corporation (NYSE:LNC), and Vulcan Materials Company (NYSE:VMC) to get a better sense of its popularity.
If you’d ask most investors, hedge funds are seen as slow, outdated investment vehicles of yesteryear. While there are greater than 8000 funds trading at the moment, Experts at Insider Monkey, a website specializing in hedge funds, look at the bigwigs of this club, approximately 700 funds. These hedge fund managers handle most of the smart money’s total asset base, and by tracking their unrivaled investments, Insider Monkey has brought to light various investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points annually for more than a decade in their back tests.
Keeping this in mind, let’s analyze the latest action surrounding Tesoro Corporation (NYSE:TSO).
How have hedgies been trading Tesoro Corporation (NYSE:TSO)?
At Q3’s end, a total of 45 of the hedge funds tracked by Insider Monkey were bullish in this stock, a change of 5% from the previous quarter. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially.
According to publicly available hedge fund holdings data compiled by Insider Monkey, D. E. Shaw’s D E Shaw had the biggest position in Tesoro Corporation (NYSE:TSO), worth close to $660.3 million, corresponding to 1% of its total 13F portfolio. On D E Shaw’s heels is Jonathan Auerbach of Hound Partners, with a $414 million position; the fund has 9% of its 13F portfolio invested in the stock. Other peers with similar optimism consist of David Greenspan’s Slate Path Capital, Cliff Asness’s AQR Capital Management and Israel Englander’s Millennium Management.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Tesoro Corporation (NYSE:TSO). Arrowstreet Capital had $6.1 million invested in the company at the end of the quarter. Neil Chriss’s Hutchin Hill Capital also initiated a $6.1 million position during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners, Benjamin A. Smith’s Laurion Capital Management, and Anthony Bozza’s Lakewood Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Tesoro Corporation (NYSE:TSO). We will take a look at Regions Financial Corporation (NYSE:RF), Lincoln National Corporation (NYSE:LNC), Vulcan Materials Company (NYSE:VMC), and Host Hotels and Resorts Inc (NYSE:HST). All of these stocks’ market caps are similar to TSO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $963 million. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Host Hotels and Resorts Inc (NYSE:HST) is the least popular one with only 29 bullish hedge fund positions. Tesoro Corporation (NYSE:TSO) is not the most popular stock in this group but hedge fund interest is still above average. What is positive about hedge fund interest in TSO is its magnitude. Hedge funds collectively invested nearly $2.3 billion in the stock. This figure is 50% more than the amount invested in VMC. We believe Tesoro deserves a closer look by investors.