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Were Hedge Funds Right About Buying Chevron Corporation (CVX)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Chevron Corporation (NYSE:CVX) and determine whether hedge funds had an edge regarding this stock.

Is Chevron Corporation (NYSE:CVX) an excellent investment right now? Money managers were becoming hopeful. The number of bullish hedge fund bets rose by 6 in recent months. Our calculations also showed that CVX 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Crispin Odey of Odey Asset Management Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to analyze the key hedge fund action surrounding Chevron Corporation (NYSE:CVX).

What does smart money think about Chevron Corporation (NYSE:CVX)?

Heading into the second quarter of 2020, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the fourth quarter of 2019. On the other hand, there were a total of 53 hedge funds with a bullish position in CVX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CVX A Good Stock To Buy?

More specifically, Fisher Asset Management was the largest shareholder of Chevron Corporation (NYSE:CVX), with a stake worth $369.3 million reported as of the end of September. Trailing Fisher Asset Management was Diamond Hill Capital, which amassed a stake valued at $279.8 million. Citadel Investment Group, Adage Capital 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 Meru Capital allocated the biggest weight to Chevron Corporation (NYSE:CVX), around 15.78% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, designating 7.59 percent of its 13F equity portfolio to CVX.

Now, specific money managers were breaking ground themselves. Holocene Advisors, managed by Brandon Haley, established the biggest position in Chevron Corporation (NYSE:CVX). Holocene Advisors had $58.9 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $27.8 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Vince Maddi and Shawn Brennan’s SIR Capital Management, and Matt Smith’s Deep Basin Capital.

Let’s now review hedge fund activity in other stocks similar to Chevron Corporation (NYSE:CVX). We will take a look at Eli Lilly and Company (NYSE:LLY), The Unilever Group (NYSE:UL), SAP SE (NYSE:SAP), and NIKE, Inc. (NYSE:NKE). This group of stocks’ market values are similar to CVX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LLY 43 1323452 0
UL 13 207786 -4
SAP 15 1386317 -1
NKE 80 2172472 -1
Average 37.75 1272507 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $1273 million. That figure was $1646 million in CVX’s case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand The Unilever Group (NYSE:UL) is the least popular one with only 13 bullish hedge fund positions. Chevron Corporation (NYSE:CVX) is not the most popular stock in this group but hedge fund interest is still above 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CVX, though not to the same extent, as the stock returned 25% during the second quarter and outperformed the market as well.

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