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Hedge Funds Dumped Chevron Corporation (CVX) Even Before Coronavirus Threat

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Chevron Corporation (NYSE:CVX) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Chevron Corporation (NYSE:CVX) investors should be aware of a decrease in enthusiasm from smart money recently. Our calculations also showed that CVX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a peek at the latest hedge fund action regarding Chevron Corporation (NYSE:CVX).

What does smart money think about Chevron Corporation (NYSE:CVX)?

At Q4’s end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CVX over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in Chevron Corporation (NYSE:CVX). Fisher Asset Management has a $624.2 million position in the stock, comprising 0.6% of its 13F portfolio. Sitting at the No. 2 spot is John Overdeck and David Siegel of Two Sigma Advisors, with a $326.6 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions comprise Ric Dillon’s Diamond Hill Capital, Renaissance Technologies and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Hourglass Capital allocated the biggest weight to Chevron Corporation (NYSE:CVX), around 2.12% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, designating 1.57 percent of its 13F equity portfolio to CVX.

Since Chevron Corporation (NYSE:CVX) has witnessed bearish sentiment from hedge fund managers, logic holds that there was a specific group of funds that decided to sell off their entire stakes heading into Q4. At the top of the heap, Brandon Haley’s Holocene Advisors sold off the biggest position of all the hedgies watched by Insider Monkey, worth an estimated $48.4 million in stock, and Vince Maddi and Shawn Brennan’s SIR Capital Management was right behind this move, as the fund sold off about $21.9 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 6 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Chevron Corporation (NYSE:CVX). These stocks are Wells Fargo & Company (NYSE:WFC), Pfizer Inc. (NYSE:PFE), Novartis AG (NYSE:NVS), and Comcast Corporation (NASDAQ:CMCSA). All of these stocks’ market caps resemble CVX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WFC 79 23878918 12
PFE 62 4838507 4
NVS 30 2054513 2
CMCSA 87 6747748 -3
Average 64.5 9379922 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 64.5 hedge funds with bullish positions and the average amount invested in these stocks was $9380 million. That figure was $2392 million in CVX’s case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 30 bullish hedge fund positions. Chevron Corporation (NYSE:CVX) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately CVX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CVX investors were disappointed as the stock returned -32.3% during the same time period 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 most of these stocks already outperformed the market in Q1.

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

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