Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 700 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).
Although Britain decided to leave the EU last week, the markets haven’t shown as much concern as initially feared and the less fear in the marketplace gave a boost to the stocks of Whiting Petroleum Corp (NYSE:WLL), Exxon Mobil Corporation (NYSE:XOM), and Seadrill Ltd (NYSE:SDRL) this week. All three stocks mentioned turned in break-even to positive performances, with Exxon Mobil doing the best, up by almost 5% on the week.
Supporting the positive price action this week was a strong EIA report. U.S. commercial crude oil inventories dropped by 4.1 million barrels, versus the estimate of a drop of 2.4 million barrels. Distillate inventories fell 1.8 million barrels while gasoline inventories rose 1.4 million barrels. Analysts were expecting roughly flat performances for both. Further adding to the bullish sentiment was the EIA estimate that domestic production fell by 55,000 barrels per day last week, with production in Alaska falling 26,000 barrels per day and production in the lower 48 declining by 29,000 barrels per day. Going the other way in terms of sentiment was the news that the U.S. oil right count jumped by 11 to 341.
For whatever reasons, it seems that crude futures are having a difficult time passing the all important $50 per barrel mark. One reason is undoubtedly technical selling, hedging and shorting at that level. Another reason was the Brexit and other bad news events.
Although crude will likely remain volatile given the beginning of the quarter, the fundamentals underlying the commodity are strengthening. With some markets now trading around the levels they were before the Brexit vote, it seems the wisdom of the crowds is saying that the economic consequences and the negative demand effect of a Brexit might not be as bad as originally thought. Central bank monetary stimulus and/or fiscal stimulus packages could offset a lot of the negative effects and demand for crude oil could continue rising. With the lack of adequate investment in many parts of the world, supply will likely continue falling in non-OPEC countries for a few more months.
Of the 766 elite funds we track, 22 funds owned $110.83 million worth of Seadrill Ltd (NYSE:SDRL)’s stock, 43 funds held shares of Whiting Petroleum Corp (NYSE:WLL) worth $303.58 million in aggregate, and 60 amassed stakes in Exxon Mobil with a total value of $2.50 billion at the end of the first quarter.
On the next page, we examine Energy Transfer Equity LP, and Williams Companies Inc.