Hedge Funds Aren’t Crazy About Scorpio Tankers Inc. (STNG) Anymore

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 Scorpio Tankers Inc. (NYSE:STNG) and determine whether hedge funds skillfully traded this stock.

Scorpio Tankers Inc. (NYSE:STNG) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. STNG shareholders have witnessed a decrease in support from the world’s most elite money managers lately. There were 25 hedge funds in our database with STNG holdings at the end of March. Our calculations also showed that STNG 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).

Video: 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 S&P 500 ETFs by 58 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 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.

Peter Algert of Algert Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to analyze the recent hedge fund action regarding Scorpio Tankers Inc. (NYSE:STNG).

How have hedgies been trading Scorpio Tankers Inc. (NYSE:STNG)?

At second quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards STNG over the last 20 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Among these funds, Hosking Partners held the most valuable stake in Scorpio Tankers Inc. (NYSE:STNG), which was worth $16.7 million at the end of the third quarter. On the second spot was Bayberry Capital Partners which amassed $7.4 million worth of shares. Citadel Investment Group, PEAK6 Capital Management, and Point72 Asset Management 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 Bayberry Capital Partners allocated the biggest weight to Scorpio Tankers Inc. (NYSE:STNG), around 1.44% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, dishing out 0.58 percent of its 13F equity portfolio to STNG.

Since Scorpio Tankers Inc. (NYSE:STNG) has witnessed declining sentiment from the smart money, it’s safe to say that there exists a select few money managers that elected to cut their full holdings last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest position of all the hedgies tracked by Insider Monkey, totaling close to $9.2 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also said goodbye to its stock, about $3.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 7 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Scorpio Tankers Inc. (NYSE:STNG). These stocks are GoPro Inc (NASDAQ:GPRO), Saul Centers Inc (NYSE:BFS), Central Securities Corporation (NYSE:CET), The Greenbrier Companies Inc (NYSE:GBX), Oyster Point Pharma, Inc. (NASDAQ:OYST), Argan, Inc. (NYSE:AGX), and National Western Life Group Inc. (NASDAQ:NWLI). This group of stocks’ market valuations are similar to STNG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GPRO 10 255117 1
BFS 7 21633 0
CET 3 15546 1
GBX 9 15335 1
OYST 14 31031 10
AGX 11 62968 -1
NWLI 7 10689 0
Average 8.7 58903 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.7 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $46 million in STNG’s case. Oyster Point Pharma, Inc. (NASDAQ:OYST) is the most popular stock in this table. On the other hand Central Securities Corporation (NYSE:CET) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Scorpio Tankers Inc. (NYSE:STNG) is more popular among hedge funds. Our overall hedge fund sentiment score for STNG is 64.4. 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. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately STNG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on STNG were disappointed as the stock returned -12.8% 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 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.