Were Hedge Funds Right About Flocking Into Valero Energy Corporation (VLO) ?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by more than 6 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Valero Energy Corporation (NYSE:VLO) from the perspective of those elite funds.

Valero Energy Corporation (NYSE:VLO) shareholders have witnessed an increase in enthusiasm from smart money lately. VLO was in 40 hedge funds’ portfolios at the end of March. There were 32 hedge funds in our database with VLO holdings at the end of the previous quarter. Our calculations also showed that VLO isn’t among the 30 most popular stocks among hedge funds.

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


We’re going to analyze the fresh hedge fund action surrounding Valero Energy Corporation (NYSE:VLO).

What have hedge funds been doing with Valero Energy Corporation (NYSE:VLO)?

At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VLO over the last 15 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, AQR Capital Management held the most valuable stake in Valero Energy Corporation (NYSE:VLO), which was worth $488.8 million at the end of the first quarter. On the second spot was Millennium Management which amassed $176.8 million worth of shares. Moreover, Two Sigma Advisors, Point72 Asset Management, and D E Shaw were also bullish on Valero Energy Corporation (NYSE:VLO), allocating a large percentage of their portfolios to this stock.

Consequently, key hedge funds were breaking ground themselves. Encompass Capital Advisors, managed by Todd J. Kantor, established the most valuable call position in Valero Energy Corporation (NYSE:VLO). Encompass Capital Advisors had $45.6 million invested in the company at the end of the quarter. George Soros’s Soros Fund Management also made a $42.4 million investment in the stock during the quarter. The other funds with brand new VLO positions are Ken Heebner’s Capital Growth Management, Robert Bishop’s Impala Asset Management, and Todd J. Kantor’s Encompass Capital Advisors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Valero Energy Corporation (NYSE:VLO) but similarly valued. These stocks are Canadian Imperial Bank of Commerce (NYSE:CM), Carnival Corporation (NYSE:CCL), Delta Air Lines, Inc. (NYSE:DAL), and Williams Companies, Inc. (NYSE:WMB). All of these stocks’ market caps resemble VLO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CM 15 321181 0
CCL 28 567796 -11
DAL 60 6467050 -13
WMB 32 1694369 -7
Average 33.75 2262599 -7.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $2263 million. That figure was $1376 million in VLO’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 15 bullish hedge fund positions. Valero Energy Corporation (NYSE:VLO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately VLO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VLO were disappointed as the stock returned -13.1% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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