We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards CNOOC Limited (NYSE:CEO).
Is CNOOC Limited (NYSE:CEO) a marvelous investment now? The best stock pickers were getting more optimistic. The number of long hedge fund positions increased by 1 lately. CNOOC Limited (NYSE:CEO) was in 14 hedge funds’ portfolios at the end of September. The all time high for this statistic is 15. Our calculations also showed that CEO isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s check out the recent hedge fund action encompassing CNOOC Limited (NYSE:CEO).
Do Hedge Funds Think CEO Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in CEO a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the number one position in CNOOC Limited (NYSE:CEO). Renaissance Technologies has a $105.5 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Oaktree Capital Management, led by Howard Marks, holding a $30.9 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Oaktree Capital Management allocated the biggest weight to CNOOC Limited (NYSE:CEO), around 0.67% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, designating 0.11 percent of its 13F equity portfolio to CEO.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Oaktree Capital Management, managed by Howard Marks, created the largest position in CNOOC Limited (NYSE:CEO). Oaktree Capital Management had $30.9 million invested in the company at the end of the quarter. Murray Stahl’s Horizon Asset Management also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s now review hedge fund activity in other stocks similar to CNOOC Limited (NYSE:CEO). We will take a look at Koninklijke Philips NV (NYSE:PHG), Veeva Systems Inc (NYSE:VEEV), General Motors Company (NYSE:GM), Monster Beverage Corp (NASDAQ:MNST), HCA Healthcare Inc (NYSE:HCA), Roper Technologies Inc. (NYSE:ROP), and Canadian Pacific Railway Limited (NYSE:CP). This group of stocks’ market caps match CEO’s market cap.
|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 44.4 hedge funds with bullish positions and the average amount invested in these stocks was $1890 million. That figure was $177 million in CEO’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 10 bullish hedge fund positions. CNOOC Limited (NYSE:CEO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CEO is 37.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately CEO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CEO investors were disappointed as the stock returned -6.3% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.