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2019 Review: Most Favored Hedge Fund Stocks vs. BP plc (BP)

Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards BP plc (NYSE:BP) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

BP plc (NYSE:BP) has experienced an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that BP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s analyze the latest hedge fund action surrounding BP plc (NYSE:BP).

What does smart money think about BP plc (NYSE:BP)?

Heading into the fourth quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in BP a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

The largest stake in BP plc (NYSE:BP) was held by Renaissance Technologies, which reported holding $676.2 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $344.6 million position. Other investors bullish on the company included Orbis Investment Management, Millennium Management, and Kahn Brothers. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to BP plc (NYSE:BP), around 7.98% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, earmarking 5.26 percent of its 13F equity portfolio to BP.

Consequently, some big names were breaking ground themselves. Arosa Capital Management, managed by Till Bechtolsheimer, established the most outsized position in BP plc (NYSE:BP). Arosa Capital Management had $14.6 million invested in the company at the end of the quarter. George Soros’s Soros Fund Management also made a $10.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Sara Nainzadeh’s Centenus Global Management, Paul Marshall and Ian Wace’s Marshall Wace, and Matthew Tewksbury’s Stevens Capital Management.

Let’s now review hedge fund activity in other stocks similar to BP plc (NYSE:BP). We will take a look at International Business Machines Corp. (NYSE:IBM), Costco Wholesale Corporation (NASDAQ:COST), BHP Group (NYSE:BHP), and Accenture Plc (NYSE:ACN). This group of stocks’ market valuations are similar to BP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IBM 42 1569607 -3
COST 51 3861914 11
BHP 21 800372 2
ACN 42 1120846 4
Average 39 1838185 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1838 million. That figure was $1617 million in BP’s case. Costco Wholesale Corporation (NASDAQ:COST) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 21 bullish hedge fund positions. BP plc (NYSE:BP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately BP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BP investors were disappointed as the stock returned 6.9% in 2019 (as of 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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