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Hedge Funds Have Never Been This Bullish On ConocoPhillips Company (COP)

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in ConocoPhillips Company (NYSE:COP)? The smart money sentiment can provide an answer to this question.

Is ConocoPhillips Company (NYSE:COP) worth your attention right now? The smart money is betting on the stock. The number of bullish hedge fund bets moved up by 8 recently. Our calculations also showed that COP isn’t among the 30 most popular stocks among hedge funds. COP was in 65 hedge funds’ portfolios at the end of the third quarter of 2019. There were 57 hedge funds in our database with COP holdings at the end of the previous quarter.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the key hedge fund action regarding ConocoPhillips Company (NYSE:COP).

What does smart money think about ConocoPhillips Company (NYSE:COP)?

At the end of the third quarter, a total of 65 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 55 hedge funds with a bullish position in COP a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

COP_nov2019

The largest stake in ConocoPhillips Company (NYSE:COP) was held by D E Shaw, which reported holding $849.5 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $362.8 million position. Other investors bullish on the company included Fisher Asset Management, Two Sigma Advisors, and Millennium Management. In terms of the portfolio weights assigned to each position GeoSphere Capital Management allocated the biggest weight to ConocoPhillips Company (NYSE:COP), around 6.24% of its portfolio. Arosa Capital Management is also relatively very bullish on the stock, setting aside 4.23 percent of its 13F equity portfolio to COP.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, initiated the most outsized position in ConocoPhillips Company (NYSE:COP). Senator Investment Group had $28.5 million invested in the company at the end of the quarter. Till Bechtolsheimer’s Arosa Capital Management also initiated a $22.8 million position during the quarter. The other funds with new positions in the stock are George Soros’s Soros Fund Management, Peter Muller’s PDT Partners, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now review hedge fund activity in other stocks similar to ConocoPhillips Company (NYSE:COP). These stocks are Colgate-Palmolive Company (NYSE:CL), Equinor ASA (NYSE:EQNR), Enterprise Products Partners L.P. (NYSE:EPD), and PNC Financial Services Group Inc. (NYSE:PNC). All of these stocks’ market caps resemble COP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CL 42 2061209 0
EQNR 14 392283 1
EPD 21 301985 2
PNC 39 2074279 1
Average 29 1207439 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1207 million. That figure was $2902 million in COP’s case. Colgate-Palmolive Company (NYSE:CL) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks ConocoPhillips Company (NYSE:COP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on COP, though not to the same extent, as the stock returned 5.9% during the fourth quarter (through 11/22) and outperformed the market as well.

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

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