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Did Hedge Funds Make The Right Call On Marathon Oil Corporation (MRO) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtMarathon Oil Corporation (NYSE:MRO) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Marathon Oil Corporation (NYSE:MRO) investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. MRO was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 30 hedge funds in our database with MRO positions at the end of the previous quarter. Our calculations also showed that MRO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most traders, hedge funds are perceived as worthless, old financial vehicles of the past. While there are more than 8000 funds in operation at present, We hone in on the aristocrats of this club, approximately 850 funds. These investment experts handle most of the smart money’s total asset base, and by tracking their finest investments, Insider Monkey has spotted a few investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a look at the recent hedge fund action encompassing Marathon Oil Corporation (NYSE:MRO).

Hedge fund activity in Marathon Oil Corporation (NYSE:MRO)

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in MRO over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MRO A Good Stock To Buy?

The largest stake in Marathon Oil Corporation (NYSE:MRO) was held by Fisher Asset Management, which reported holding $20.8 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $17.3 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to Marathon Oil Corporation (NYSE:MRO), around 0.3% of its 13F portfolio. Caxton Associates LP is also relatively very bullish on the stock, earmarking 0.24 percent of its 13F equity portfolio to MRO.

Judging by the fact that Marathon Oil Corporation (NYSE:MRO) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers who were dropping their entire stakes by the end of the first quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management cut the largest investment of the 750 funds tracked by Insider Monkey, comprising an estimated $86.5 million in stock. Todd J. Kantor’s fund, Encompass Capital Advisors, also cut its stock, about $77 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Marathon Oil Corporation (NYSE:MRO) but similarly valued. These stocks are World Wrestling Entertainment, Inc. (NYSE:WWE), Yamana Gold Inc. (NYSE:AUY), Power Integrations Inc (NASDAQ:POWI), and The Gap Inc. (NYSE:GPS). All of these stocks’ market caps are closest to MRO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WWE 31 374902 1
AUY 14 212094 -2
POWI 21 76700 4
GPS 24 48879 -7
Average 22.5 178144 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $178 million. That figure was $93 million in MRO’s case. World Wrestling Entertainment, Inc. (NYSE:WWE) is the most popular stock in this table. On the other hand Yamana Gold Inc. (NYSE:AUY) is the least popular one with only 14 bullish hedge fund positions. Marathon Oil Corporation (NYSE:MRO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on MRO as the stock returned 86% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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