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Were Hedge Funds Right About BP plc (BP)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on BP plc (NYSE:BP).

BP plc (NYSE:BP) shareholders have witnessed an increase in hedge fund sentiment lately. Our calculations also showed that BP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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.

New York Stock Exchange

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the new hedge fund action encompassing BP plc (NYSE:BP).

What have hedge funds been doing with BP plc (NYSE:BP)?

Heading into the first quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in BP a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in BP plc (NYSE:BP) was held by Renaissance Technologies, which reported holding $645 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $347.1 million position. Other investors bullish on the company included Orbis Investment Management, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to BP plc (NYSE:BP), around 7.43% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, dishing out 4.84 percent of its 13F equity portfolio to BP.

Now, some big names were leading the bulls’ herd. Carlson Capital, managed by Clint Carlson, established the most outsized position in BP plc (NYSE:BP). Carlson Capital had $16.8 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also made a $2.6 million investment in the stock during the quarter. The other funds with brand new BP positions are Allan Teh’s Kamunting Street Capital, Donald Sussman’s Paloma Partners, and Ed Beddow and William Tichy’s Beddow Capital Management.

Let’s now review hedge fund activity in other stocks similar to BP plc (NYSE:BP). We will take a look at Paypal Holdings Inc (NASDAQ:PYPL), Honeywell International Inc. (NYSE:HON), Eli Lilly and Company (NYSE:LLY), and Sanofi (NASDAQ:SNY). This group of stocks’ market values match BP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PYPL 126 6225698 22
HON 55 2282262 -3
LLY 43 1493296 -1
SNY 31 1113585 3
Average 63.75 2778710 5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.75 hedge funds with bullish positions and the average amount invested in these stocks was $2779 million. That figure was $1634 million in BP’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Sanofi (NASDAQ:SNY) is the least popular one with only 31 bullish hedge fund positions. BP plc (NYSE:BP) 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 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately BP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BP investors were disappointed as the stock returned -38.5% 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 most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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