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Were Hedge Funds Right About Dumping TOTAL S.A. (TOT)?

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 TOTAL S.A. (NYSE:TOT) and determine whether hedge funds had an edge regarding this stock.

TOTAL S.A. (NYSE:TOT) has experienced a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that TOT 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.

SAC CAPITAL ADVISORS

Steven Cohen of Point72 Asset 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. With all of this in mind we’re going to take a look at the key hedge fund action surrounding TOTAL S.A. (NYSE:TOT).

What have hedge funds been doing with TOTAL S.A. (NYSE:TOT)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TOT over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of TOTAL S.A. (NYSE:TOT), with a stake worth $748.3 million reported as of the end of September. Trailing Fisher Asset Management was Point72 Asset Management, which amassed a stake valued at $42.8 million. Alyeska Investment Group, Marshall Wace LLP, and HBK Investments 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 Fisher Asset Management allocated the biggest weight to TOTAL S.A. (NYSE:TOT), around 0.93% of its 13F portfolio. Alyeska Investment Group is also relatively very bullish on the stock, designating 0.59 percent of its 13F equity portfolio to TOT.

Because TOTAL S.A. (NYSE:TOT) has faced bearish sentiment from the smart money, we can see that there exists a select few hedge funds who were dropping their entire stakes by the end of the first quarter. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management sold off the biggest stake of the 750 funds tracked by Insider Monkey, worth close to $14.9 million in stock. Nick Thakore’s fund, Diametric Capital, also said goodbye to its stock, about $1.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 5 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to TOTAL S.A. (NYSE:TOT). These stocks are Lockheed Martin Corporation (NYSE:LMT), GlaxoSmithKline plc (NYSE:GSK), Broadcom Inc (NASDAQ:AVGO), and Honeywell International Inc. (NYSE:HON). This group of stocks’ market caps are closest to TOT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LMT 55 1505572 8
GSK 27 1953128 1
AVGO 50 1720031 -11
HON 44 1215105 -11
Average 44 1598459 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $1598 million. That figure was $837 million in TOT’s case. Lockheed Martin Corporation (NYSE:LMT) is the most popular stock in this table. On the other hand GlaxoSmithKline plc (NYSE:GSK) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks TOTAL S.A. (NYSE:TOT) is even less popular than GSK. Hedge funds dodged a bullet by taking a bearish stance towards TOT. 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 TOT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); TOT investors were disappointed as the stock returned 5.3% 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.