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Were Hedge Funds Right About Chevron Corporation (CVX)?

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. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Chevron Corporation (NYSE:CVX).

Is Chevron Corporation (NYSE:CVX) a buy right now? Prominent investors are becoming less hopeful. The number of long hedge fund bets fell by 6 in recent months. Our calculations also showed that CVX 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). CVX was in 47 hedge funds’ portfolios at the end of December. There were 53 hedge funds in our database with CVX holdings at the end of the previous quarter.

Today there are a lot of methods stock traders employ to grade their stock investments. A duo of the less utilized methods are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the elite money managers can trounce their index-focused peers by a very impressive margin (see the details here).

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

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. Now let’s take a look at the fresh hedge fund action surrounding Chevron Corporation (NYSE:CVX).

What have hedge funds been doing with Chevron Corporation (NYSE:CVX)?

At the end of the fourth quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CVX over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of Chevron Corporation (NYSE:CVX), with a stake worth $624.2 million reported as of the end of September. Trailing Fisher Asset Management was Two Sigma Advisors, which amassed a stake valued at $326.6 million. Diamond Hill Capital, Renaissance Technologies, 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 Hourglass Capital allocated the biggest weight to Chevron Corporation (NYSE:CVX), around 2.12% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, dishing out 1.57 percent of its 13F equity portfolio to CVX.

Seeing as Chevron Corporation (NYSE:CVX) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there were a few money managers that slashed their positions entirely by the end of the third quarter. Interestingly, Brandon Haley’s Holocene Advisors sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling about $48.4 million in stock, and Vince Maddi and Shawn Brennan’s SIR Capital Management was right behind this move, as the fund cut about $21.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Chevron Corporation (NYSE:CVX). These stocks are Wells Fargo & Company (NYSE:WFC), Pfizer Inc. (NYSE:PFE), Novartis AG (NYSE:NVS), and Comcast Corporation (NASDAQ:CMCSA). This group of stocks’ market caps are similar to CVX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WFC 79 23878918 12
PFE 62 4838507 4
NVS 30 2054513 2
CMCSA 87 6747748 -3
Average 64.5 9379922 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 64.5 hedge funds with bullish positions and the average amount invested in these stocks was $9380 million. That figure was $2392 million in CVX’s case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 30 bullish hedge fund positions. Chevron Corporation (NYSE:CVX) 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 CVX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CVX investors were disappointed as the stock returned -24.9% 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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