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Hedge Funds Aren’t Crazy About Imperial Oil Limited (IMO) Anymore

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 4 percentage points through September 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Is Imperial Oil Limited (NYSEAMEX:IMO) a bargain? The smart money is getting less optimistic. The number of long hedge fund positions were trimmed by 5 lately. Our calculations also showed that IMO isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Noam Gottesman GLG Partners

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the fresh hedge fund action regarding Imperial Oil Limited (NYSEAMEX:IMO).

How are hedge funds trading Imperial Oil Limited (NYSEAMEX:IMO)?

Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in IMO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

IMO_oct2019

More specifically, D E Shaw was the largest shareholder of Imperial Oil Limited (NYSEAMEX:IMO), with a stake worth $13.5 million reported as of the end of March. Trailing D E Shaw was GLG Partners, which amassed a stake valued at $6.8 million. SIR Capital Management, Point72 Asset Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Imperial Oil Limited (NYSEAMEX:IMO) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there were a few hedge funds that elected to cut their positions entirely heading into Q3. At the top of the heap, Cliff Asness’s AQR Capital Management dumped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at about $18.4 million in stock. George Zweig, Shane Haas and Ravi Chander’s fund, Signition LP, also cut its stock, about $0.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Imperial Oil Limited (NYSEAMEX:IMO). We will take a look at Cadence Design Systems Inc (NASDAQ:CDNS), AMETEK, Inc. (NYSE:AME), MSCI Inc (NYSE:MSCI), and Cheniere Energy Partners LP (NYSEAMEX:CQP). All of these stocks’ market caps are closest to IMO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CDNS 28 1688088 -3
AME 31 1065031 2
MSCI 36 774691 0
CQP 7 13732 0
Average 25.5 885386 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $885 million. That figure was $48 million in IMO’s case. MSCI Inc (NYSE:MSCI) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSEAMEX:CQP) is the least popular one with only 7 bullish hedge fund positions. Imperial Oil Limited (NYSEAMEX:IMO) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IMO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IMO investors were disappointed as the stock returned -5.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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