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 Phillips 66 (NYSE:PSX) and determine whether hedge funds skillfully traded this stock.
Phillips 66 (NYSE:PSX) was in 42 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 47. PSX has seen a decrease in hedge fund interest of late. There were 43 hedge funds in our database with PSX positions at the end of the first quarter. Our calculations also showed that PSX 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.
Today there are many tools stock traders have at their disposal to evaluate their holdings. A couple of the most useful tools are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the top investment managers can trounce the market by a significant amount (see the details here).
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s go over the fresh hedge fund action encompassing Phillips 66 (NYSE:PSX).
How have hedgies been trading Phillips 66 (NYSE:PSX)?
Heading into the third quarter of 2020, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from one quarter earlier. On the other hand, there were a total of 39 hedge funds with a bullish position in PSX 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).
Among these funds, Millennium Management held the most valuable stake in Phillips 66 (NYSE:PSX), which was worth $87.7 million at the end of the third quarter. On the second spot was East Side Capital (RR Partners) which amassed $48 million worth of shares. Masters Capital Management, Citadel Investment Group, and Adage Capital 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 East Side Capital (RR Partners) allocated the biggest weight to Phillips 66 (NYSE:PSX), around 8.22% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, designating 4.06 percent of its 13F equity portfolio to PSX.
Judging by the fact that Phillips 66 (NYSE:PSX) has experienced a decline in interest from hedge fund managers, we can see that there lies a certain “tier” of hedgies that elected to cut their positions entirely by the end of the second quarter. Interestingly, Todd J. Kantor’s Encompass Capital Advisors sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising about $36.2 million in stock, and Jonathan Barrett and Paul Segal’s Luminus Management was right behind this move, as the fund said goodbye to about $18 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Phillips 66 (NYSE:PSX) but similarly valued. These stocks are Mizuho Financial Group Inc. (NYSE:MFG), O’Reilly Automotive Inc (NASDAQ:ORLY), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Southern Copper Corporation (NYSE:SCCO), Twilio Inc. (NYSE:TWLO), Cognizant Technology Solutions Corp (NASDAQ:CTSH), and Chunghwa Telecom Co., Ltd (NYSE:CHT). This group of stocks’ market valuations match PSX’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.4 hedge funds with bullish positions and the average amount invested in these stocks was $1435 million. That figure was $363 million in PSX’s case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 4 bullish hedge fund positions. Phillips 66 (NYSE:PSX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PSX is 61.5. 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. This is a slightly positive signal but 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately PSX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PSX were disappointed as the stock returned -17.5% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.