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Hedge Funds Are Dumping Suncor Energy Inc. (SU)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Suncor Energy Inc. (NYSE:SU) and determine whether hedge funds skillfully traded this stock.

Is Suncor Energy Inc. (NYSE:SU) a buy here? The best stock pickers were getting less bullish. The number of long hedge fund bets were cut by 1 in recent months. Suncor Energy Inc. (NYSE:SU) was in 29 hedge funds’ portfolios at the end of June. The all time high for this statistics is 41. Our calculations also showed that SU isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 30 hedge funds in our database with SU positions at the end of the first quarter.

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s review the key hedge fund action surrounding Suncor Energy Inc. (NYSE:SU).

What have hedge funds been doing with Suncor Energy Inc. (NYSE:SU)?

Heading into the third quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. By comparison, 32 hedge funds held shares or bullish call options in SU a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Berkshire Hathaway held the most valuable stake in Suncor Energy Inc. (NYSE:SU), which was worth $323.7 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $150.2 million worth of shares. D E Shaw, Luminus Management, and Locust Wood Capital Advisers were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Suncor Energy Inc. (NYSE:SU), around 10.39% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, dishing out 2.96 percent of its 13F equity portfolio to SU.

Because Suncor Energy Inc. (NYSE:SU) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds that elected to cut their positions entirely in the second quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest stake of all the hedgies tracked by Insider Monkey, worth about $57.3 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund dropped about $10.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Suncor Energy Inc. (NYSE:SU) but similarly valued. These stocks are Sirius XM Holdings Inc (NASDAQ:SIRI), Cummins Inc. (NYSE:CMI), Schlumberger Limited. (NYSE:SLB), Johnson Controls International plc (NYSE:JCI), Fresenius Medical Care AG & Co. (NYSE:FMS), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), and RingCentral Inc (NYSE:RNG). This group of stocks’ market caps are similar to SU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SIRI 42 1136784 6
CMI 38 358670 4
SLB 53 932470 4
JCI 28 1099174 -9
FMS 6 11727 -4
WLTW 49 2288145 6
RNG 62 3647093 -5
Average 39.7 1353438 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.7 hedge funds with bullish positions and the average amount invested in these stocks was $1353 million. That figure was $845 million in SU’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 6 bullish hedge fund positions. Suncor Energy Inc. (NYSE:SU) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SU is 45.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately SU wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SU investors were disappointed as the stock returned -19% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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