Were Hedge Funds Right About Ditching CNOOC Limited (CEO)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtCNOOC Limited (NYSE:CEO) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is CNOOC Limited (NYSE:CEO) a bargain? Prominent investors were reducing their bets on the stock. The number of long hedge fund positions were cut by 3 recently. Our calculations also showed that CEO 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). CEO was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. There were 14 hedge funds in our database with CEO positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are tons of formulas market participants use to appraise publicly traded companies. A duo of the less known formulas are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the elite fund managers can outperform the broader indices by a significant margin (see the details here).


Howard Marks of Oaktree Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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. Keeping this in mind let’s take a glance at the fresh hedge fund action surrounding CNOOC Limited (NYSE:CEO).

What have hedge funds been doing with CNOOC Limited (NYSE:CEO)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in CEO over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in CNOOC Limited (NYSE:CEO), which was worth $106.9 million at the end of the third quarter. On the second spot was Oaktree Capital Management which amassed $30.3 million worth of shares. LMR Partners, Marshall Wace LLP, and Arrowstreet Capital 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 LMR Partners allocated the biggest weight to CNOOC Limited (NYSE:CEO), around 2.11% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, earmarking 0.85 percent of its 13F equity portfolio to CEO.

Judging by the fact that CNOOC Limited (NYSE:CEO) has faced a decline in interest from the smart money, we can see that there exists a select few hedgies that elected to cut their full holdings by the end of the first quarter. Interestingly, Donald Sussman’s Paloma Partners said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, totaling about $0.5 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $0.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to CNOOC Limited (NYSE:CEO). These stocks are Activision Blizzard, Inc. (NASDAQ:ATVI), Boston Scientific Corporation (NYSE:BSX), Illinois Tool Works Inc. (NYSE:ITW), and Ecolab Inc. (NYSE:ECL). This group of stocks’ market valuations are similar to CEO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATVI 101 3053805 25
BSX 59 3081420 5
ITW 34 296563 2
ECL 38 1597530 -6
Average 58 2007330 6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 58 hedge funds with bullish positions and the average amount invested in these stocks was $2007 million. That figure was $178 million in CEO’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Illinois Tool Works Inc. (NYSE:ITW) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks CNOOC Limited (NYSE:CEO) is even less popular than ITW. Hedge funds dodged a bullet by taking a bearish stance towards CEO. Our calculations showed that the top 10 most popular hedge fund stocks 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 managed to beat the market by 15.5 percentage points. Unfortunately CEO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CEO investors were disappointed as the stock returned 14.6% during the second quarter 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 so far in 2020.

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