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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of December. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Phillips 66 (NYSE:PSX), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Phillips 66 (NYSE:PSX) shareholders have witnessed an increase in hedge fund interest lately. PSX was in 46 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 36 hedge funds in our database with PSX holdings at the end of the previous quarter. Our calculations also showed that PSX 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).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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. With all of this in mind let’s view the key hedge fund action encompassing Phillips 66 (NYSE:PSX).
What does smart money think about Phillips 66 (NYSE:PSX)?
At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in PSX 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 upping their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies has the biggest position in Phillips 66 (NYSE:PSX), worth close to $214.2 million, corresponding to 0.2% of its total 13F portfolio. On Renaissance Technologies’s heels is AQR Capital Management, led by Cliff Asness, holding a $169.7 million position; 0.2% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish encompass Steven Richman’s East Side Capital (RR Partners), Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position East Side Capital (RR Partners) allocated the biggest weight to Phillips 66 (NYSE:PSX), around 8.55% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, earmarking 2.11 percent of its 13F equity portfolio to PSX.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Gotham Asset Management, managed by Joel Greenblatt, initiated the biggest position in Phillips 66 (NYSE:PSX). Gotham Asset Management had $42.8 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $26 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Anand Parekh’s Alyeska Investment Group, and Donald Sussman’s Paloma Partners.
Let’s go over hedge fund activity in other stocks similar to Phillips 66 (NYSE:PSX). We will take a look at Relx PLC (NYSE:RELX), ICICI Bank Limited (NYSE:IBN), Illumina, Inc. (NASDAQ:ILMN), and EOG Resources Inc (NYSE:EOG). This group of stocks’ market values are similar to PSX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $954 million. That figure was $945 million in PSX’s case. Illumina, Inc. (NASDAQ:ILMN) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Phillips 66 (NYSE:PSX) is more popular among hedge funds. 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 and still beat the market by 12.9 percentage points. Unfortunately PSX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PSX were disappointed as the stock returned -39.8% during the four months of 2020 (through May 1st) 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.
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.