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Phillips 66 (PSX): Hedge Funds Caught Wrong Footed

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and 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. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Phillips 66 (NYSE:PSX) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Phillips 66 (NYSE:PSX) was in 46 hedge funds’ portfolios at the end of December. PSX has experienced an increase in hedge fund interest lately. There were 36 hedge funds in our database with PSX holdings at the end of the previous quarter. Our calculations also showed that PSX 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.

According to most stock holders, hedge funds are viewed as slow, old financial tools of yesteryear. While there are over 8000 funds with their doors open at the moment, Our experts choose to focus on the masters of this club, around 850 funds. Most estimates calculate that this group of people administer most of the smart money’s total asset base, and by tracking their unrivaled stock picks, Insider Monkey has uncovered many investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

RENAISSANCE TECHNOLOGIES

Jim Simons of Renaissance Technologies

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. With all of this in mind we’re going to review the latest hedge fund action surrounding Phillips 66 (NYSE:PSX).

How are hedge funds trading Phillips 66 (NYSE:PSX)?

At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the third quarter of 2019. By comparison, 47 hedge funds held shares or bullish call options in PSX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PSX A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Phillips 66 (NYSE:PSX), with a stake worth $214.2 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $169.7 million. East Side Capital (RR Partners), Millennium Management, and D E Shaw 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 8.55% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, setting aside 2.11 percent of its 13F equity portfolio to PSX.

Consequently, some big names were leading the bulls’ herd. Gotham Asset Management, managed by Joel Greenblatt, assembled the most outsized position in Phillips 66 (NYSE:PSX). Gotham Asset Management had $42.8 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $26 million investment in the stock during the quarter. The other funds with brand new PSX positions are Paul Tudor Jones’s Tudor Investment Corp, Anand Parekh’s Alyeska Investment Group, and Donald Sussman’s Paloma Partners.

Let’s now take a look at hedge fund activity in other stocks similar to Phillips 66 (NYSE:PSX). These stocks are Relx PLC (NYSE:RELX), ICICI Bank Limited (NYSE:IBN), Illumina, Inc. (NASDAQ:ILMN), and EOG Resources Inc (NYSE:EOG). This group of stocks’ market valuations resemble PSX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RELX 7 99457 1
IBN 29 1107865 1
ILMN 43 1121339 3
EOG 43 1486121 -10
Average 30.5 953696 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $954 million. That figure was $945 million in PSX’s case. Illumina, Inc. (NASDAQ:ILMN) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Phillips 66 (NYSE:PSX) is more popular among hedge funds. 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 11.7% in 2020 through March 11th and still beat the market by 3.1 percentage points. Unfortunately PSX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PSX were disappointed as the stock returned -50% during the first two months of 2020 (through March 11th) 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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