“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Scorpio Tankers Inc. (NYSE:STNG) in order to identify whether reputable and successful top money managers continue to believe in its potential. Scorpio is an energy shipping company operating in some of the busiest ocean trade routes in the world. Currently Scorpio is a top 5 holding in two ETFs: Invesco Shipping ETF (NYSE:SEA) and EventShares U.S. Legislative Opportunities ETF (BATS:PLCY). Invesco Shipping ETF is bigger of the two with nearly $50 million in assets.
Scorpio Tankers Inc. (NYSE:STNG) has seen an increase in hedge fund sentiment lately. STNG was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with STNG holdings at the end of the previous quarter. Our calculations also showed that STNG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the recent hedge fund action encompassing Scorpio Tankers Inc. (NYSE:STNG).
How are hedge funds trading Scorpio Tankers Inc. (NYSE:STNG)?
Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in STNG a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Rubric Capital Management, managed by David Rosen, holds the number one position in Scorpio Tankers Inc. (NYSE:STNG). Rubric Capital Management has a $20.8 million position in the stock, comprising 1.9% of its 13F portfolio. The second largest stake is held by Maplelane Capital, led by Leon Shaulov, holding a $14.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other peers that are bullish include Steve Cohen’s Point72 Asset Management, Renaissance Technologies and Michael Barnes and Arif Inayatullah’s Tricadia Capital Management. In terms of the portfolio weights assigned to each position Tricadia Capital Management allocated the biggest weight to Scorpio Tankers Inc. (NYSE:STNG), around 66.14% of its portfolio. Rubric Capital Management is also relatively very bullish on the stock, earmarking 1.91 percent of its 13F equity portfolio to STNG.
As aggregate interest increased, some big names were breaking ground themselves. Portolan Capital Management, managed by George McCabe, initiated the most valuable position in Scorpio Tankers Inc. (NYSE:STNG). Portolan Capital Management had $3.5 million invested in the company at the end of the quarter. Charles Davidson and Joseph Jacobs’s Wexford Capital also made a $2.6 million investment in the stock during the quarter. The other funds with brand new STNG positions are Bruce Kovner’s Caxton Associates, Michael Gelband’s ExodusPoint Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s go over hedge fund activity in other stocks similar to Scorpio Tankers Inc. (NYSE:STNG). These stocks are Grupo Simec, S.A.B. de C.V.(NYSE:SIM), BP Midstream Partners LP (NYSE:BPMP), BRP Inc. (NASDAQ:DOOO), and PRA Group, Inc.(NASDAQ:PRAA). All of these stocks’ market caps match STNG’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $122 million in STNG’s case. BRP Inc. (NASDAQ:DOOO) is the most popular stock in this table. On the other hand Grupo Simec, S.A.B. de C.V.(NYSE:SIM) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Scorpio Tankers Inc. (NYSE:STNG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on STNG as the stock returned 15.9% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.