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Hedge Funds Cashing Out Of BP plc (BP)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of BP plc (NYSE:BP).

Is BP plc (NYSE:BP) a healthy stock for your portfolio? Money managers are turning less bullish. The number of bullish hedge fund bets shrunk by 9 in recent months. Our calculations also showed that BP isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by more than 51 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. 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.

Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the recent hedge fund action surrounding BP plc (NYSE:BP).

What does smart money think about BP plc (NYSE:BP)?

Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BP over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in BP plc (NYSE:BP), which was worth $339.1 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $230 million worth of shares. Orbis Investment Management, ValueAct Capital, and Citadel Investment Group 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 Kahn Brothers allocated the biggest weight to BP plc (NYSE:BP), around 7.26% of its 13F portfolio. Stamos Capital is also relatively very bullish on the stock, dishing out 2.69 percent of its 13F equity portfolio to BP.

Seeing as BP plc (NYSE:BP) has faced bearish sentiment from the smart money, we can see that there is a sect of hedgies that elected to cut their entire stakes in the first quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dumped the largest investment of all the hedgies followed by Insider Monkey, valued at about $40.3 million in stock, and Clint Carlson’s Carlson Capital was right behind this move, as the fund dropped about $16.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 9 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to BP plc (NYSE:BP). We will take a look at Raytheon Technologies Corporation (NYSE:UTX), United Parcel Service, Inc. (NYSE:UPS), 3M Company (NYSE:MMM), and British American Tobacco plc (NYSE:BTI). This group of stocks’ market caps are closest to BP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UTX 62 4025728 -19
UPS 48 842540 6
MMM 44 516510 -2
BTI 10 681088 1
Average 41 1516467 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1516 million. That figure was $878 million in BP’s case. Raytheon Technologies Corporation (NYSE:UTX) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 10 bullish hedge fund positions. BP plc (NYSE:BP) 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 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately BP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BP investors were disappointed as the stock returned -2.6% during the second 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.