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Were Hedge Funds Right About HollyFrontier Corporation (HFC)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards HollyFrontier Corporation (NYSE:HFC) and determine whether hedge funds skillfully traded this stock.

HollyFrontier Corporation (NYSE:HFC) has experienced a decrease in hedge fund interest of late. HFC was in 24 hedge funds’ portfolios at the end of March. There were 30 hedge funds in our database with HFC holdings at the end of the previous quarter. Our calculations also showed that HFC 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.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to check out the fresh hedge fund action surrounding HollyFrontier Corporation (NYSE:HFC).

How are hedge funds trading HollyFrontier Corporation (NYSE:HFC)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HFC over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is HFC A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the most valuable position in HollyFrontier Corporation (NYSE:HFC), worth close to $64.5 million, comprising 0.1% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, led by Ken Griffin, holding a $34.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions contain D. E. Shaw’s D E Shaw, John Overdeck and David Siegel’s Two Sigma Advisors and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Hi-Line Capital Management allocated the biggest weight to HollyFrontier Corporation (NYSE:HFC), around 1.86% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.79 percent of its 13F equity portfolio to HFC.

Seeing as HollyFrontier Corporation (NYSE:HFC) has experienced falling interest from hedge fund managers, we can see that there exists a select few fund managers that decided to sell off their entire stakes in the first quarter. At the top of the heap, David Harding’s Winton Capital Management dropped the largest stake of the 750 funds followed by Insider Monkey, valued at an estimated $7.2 million in stock, and Sara Nainzadeh’s Centenus Global Management was right behind this move, as the fund sold off about $5.8 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 6 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HollyFrontier Corporation (NYSE:HFC) but similarly valued. We will take a look at Telecom Argentina S.A. (NYSE:TEO), Mercury Systems Inc (NASDAQ:MRCY), RLI Corp. (NYSE:RLI), and Five Below Inc (NASDAQ:FIVE). All of these stocks’ market caps are similar to HFC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TEO 4 32332 -1
MRCY 12 47030 -12
RLI 15 192969 -10
FIVE 31 404860 -11
Average 15.5 169298 -8.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $169 million. That figure was $204 million in HFC’s case. Five Below Inc (NASDAQ:FIVE) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 4 bullish hedge fund positions. HollyFrontier Corporation (NYSE:HFC) 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 HFC, though not to the same extent, as the stock returned 20.5% during the second quarter and outperformed the market as well.

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