Did Hedge Funds Drop The Ball On Scorpio Tankers Inc. (STNG)?

How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Scorpio Tankers Inc. (NYSE:STNG).

Scorpio Tankers Inc. (NYSE:STNG) has seen a decrease in support from the world’s most elite money managers lately. Our calculations also showed that stng isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson, Carlson Capital

We’re going to take a peek at the latest hedge fund action regarding Scorpio Tankers Inc. (NYSE:STNG).

How are hedge funds trading Scorpio Tankers Inc. (NYSE:STNG)?

At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in STNG over the last 14 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

No of Hedge Funds with STNG Positions

The largest stake in Scorpio Tankers Inc. (NYSE:STNG) was held by 683 Capital Partners, which reported holding $21.9 million worth of stock at the end of December. It was followed by Carlson Capital with a $18.9 million position. Other investors bullish on the company included Monarch Alternative Capital, Marshall Wace LLP, and Tricadia Capital Management.

Judging by the fact that Scorpio Tankers Inc. (NYSE:STNG) has witnessed falling interest from the smart money, we can see that there lies a certain “tier” of hedgies that decided to sell off their entire stakes by the end of the third quarter. Intriguingly, Noam Gottesman’s GLG Partners said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling close to $9.5 million in stock, and Robert Polak’s Anchor Bolt Capital was right behind this move, as the fund cut about $3.6 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Scorpio Tankers Inc. (NYSE:STNG). These stocks are Alamo Group, Inc. (NYSE:ALG), TherapeuticsMD Inc (NASDAQ:TXMD), Kadant Inc. (NYSE:KAI), and Inspire Medical Systems, Inc. (NYSE:INSP). This group of stocks’ market caps are similar to STNG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALG 12 158978 -1
TXMD 10 49227 -4
KAI 17 87171 3
INSP 15 177559 2
Average 13.5 118234 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $83 million in STNG’s case. Kadant Inc. (NYSE:KAI) is the most popular stock in this table. On the other hand TherapeuticsMD Inc (NASDAQ:TXMD) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Scorpio Tankers Inc. (NYSE:STNG) is even less popular than TXMD. Hedge funds clearly dropped the ball on STNG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on STNG as the stock returned 37.4% and outperformed the market by an even larger margin.

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