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Is Valero Energy Corporation (VLO) Going to Burn These Hedge Funds?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Valero Energy Corporation (NYSE:VLO) based on that data.

Valero Energy Corporation (NYSE:VLO) has experienced a decrease in hedge fund sentiment of late. VLO was in 45 hedge funds’ portfolios at the end of the first quarter of 2020. There were 46 hedge funds in our database with VLO positions at the end of the previous quarter. Our calculations also showed that VLO 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 44 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.

Crispin Odey of Odey Asset Management Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. 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. With all of this in mind let’s view the recent hedge fund action encompassing Valero Energy Corporation (NYSE:VLO).

How are hedge funds trading Valero Energy Corporation (NYSE:VLO)?

At the end of the first quarter, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in VLO over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Valero Energy Corporation (NYSE:VLO), which was worth $57.8 million at the end of the third quarter. On the second spot was Holocene Advisors which amassed $40.1 million worth of shares. Odey Asset Management Group, AQR Capital Management, 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 Odey Asset Management Group allocated the biggest weight to Valero Energy Corporation (NYSE:VLO), around 3.99% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, designating 1.75 percent of its 13F equity portfolio to VLO.

Since Valero Energy Corporation (NYSE:VLO) has witnessed bearish sentiment from the smart money, it’s easy to see that there is a sect of funds who were dropping their positions entirely last quarter. Intriguingly, Israel Englander’s Millennium Management sold off the biggest position of the 750 funds tracked by Insider Monkey, totaling about $46.6 million in stock. Wayne Cooperman’s fund, Cobalt Capital Management, also dropped its stock, about $7 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Valero Energy Corporation (NYSE:VLO) but similarly valued. These stocks are RingCentral Inc (NYSE:RNG), Southwest Airlines Co. (NYSE:LUV), DTE Energy Company (NYSE:DTE), and Delta Air Lines, Inc. (NYSE:DAL). This group of stocks’ market values are closest to VLO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RNG 67 2827940 5
LUV 45 2344803 1
DTE 29 516788 -6
DAL 53 2970479 -17
Average 48.5 2165003 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.5 hedge funds with bullish positions and the average amount invested in these stocks was $2165 million. That figure was $276 million in VLO’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand DTE Energy Company (NYSE:DTE) is the least popular one with only 29 bullish hedge fund positions. Valero Energy Corporation (NYSE:VLO) is not the least popular stock in this group but hedge fund interest is still below average. 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 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. A small number of hedge funds were also right about betting on VLO as the stock returned 47.1% during the second quarter and outperformed the market by an even larger margin.

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