Crude oil prices plunged massively in the 20-month period leading up to the end of the March quarter on fears that global crude supplies were surging at a much higher rate than global demand. The price collapse has erased billions of dollars in revenue and earnings for energy companies, forcing them to abandon projects, cut spending, trim workforces, and delay investments in existing and new wells. However, oil prices have partially recovered from their 12-year low reached in February, mainly owing to signs that the global oil supply glut has started to waste away. Crude oil prices were in “slump” mode in the first half of the March quarter, but have embarked on an impressive rally beginning in the second half of the quarter and continuing to the present. Amid the volatile backdrop, the hedge funds tracked by Insider Monkey was heavily dumping several energy-related holdings during the first quarter, five of which we’ll examine in this article.
At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
#5. Exxon Mobil Corporation (NYSE:XOM)
– Investors with long positions (as of March 31): 60
– Aggregate value of investors’ holdings (as of March 31): $2.50 Billion
The number of hedge fund vehicles monitored by Insider Monkey with long positions in Exxon Mobil Corporation (NYSE:XOM) dropped to 60 from 68 during the first quarter of the year, while the overall value of those positions shrank to $2.50 billion from $3.08 billion quarter-over-quarter. Exxon Mobil, the world’s largest energy company, is among the best performing components of the Dow Jones Industrial Average thus far in 2016, as its shares have gained 14% year-to-date. The company posted net income of $1.81 billion for the first quarter of the year, down sharply from $4.94 billion recorded for the same period of the prior year. In late April, Exxon Mobil’s Board of Directors declared a second-quarter cash dividend of $0.75 per share, up from the $0.73 per share dividend that it paid in the first quarter. The upped dividend currently has an annual yield of 3.37%, but investors should be aware that Exxon’s payout ratio greatly exceeds 100%, so that level of payout is unlikely to last long. The energy company paid $3.05 billion in dividends in the first quarter. Richard S. Pzena’s Pzena Investment Management cut its stake in Exxon Mobil Corporation (NYSE:XOM) by 18% during the first quarter of 2016, to 4.98 million shares.
#4. Marathon Petroleum Corp (NYSE:MPC)
– Investors with long positions (as of March 31): 42
– Aggregate value of investors’ holdings (as of March 31): $1.48 Billion
There were 42 asset managers tracked by the Insider Monkey team with equity investments in Marathon Petroleum Corp (NYSE:MPC) at the end of the first quarter, compared to 50 registered at the end of the prior quarter. Correspondingly, the value of those asset managers’ equity investments in Marathon Petroleum fell to $1.48 billion from $2.58 billion. The stock performance of the independent petroleum refining company, like other refiners in the industry, has been weighed on by weakness in gasoline cracks and capture so far in 2016. Analysts at Deutsche Bank believe Marathon Petroleum has the highest upside potential among refiners in the longer-term should crude oil prices reach $60-to-$65 per barrel, which would result in wider crude differentials. At the same time, Deutsche Bank also claims the company has the lowest downside risk in the near-term, so Marathon Petroleum seems to be in a relatively strong position for both short-term and long-term-oriented investors. D.E. Shaw & Co. L.P., founded by David E. Shaw, cut its position in Marathon Petroleum Corp (NYSE:MPC) by 35% during the first quarter, to 8.01 million shares.
On page two we discuss three more energy stocks that hedge funds were selling out of during the first quarter.