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Hedge Funds Are Betting On Phillips 66 (PSX)

Reymerlyn Martin

Concerns over rising interest rates and expected further rate increases have hit several stocks hard since the end of the third quarter. NASDAQ and Russell 2000 indices are already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points in the first half of the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Phillips 66 (NYSE:PSX).

Hedge funds are growing a lot more bullish on Phillips 66, with the number of smart money shareholders of the stock jumping by 43% over the past two quarters. While that wasn't enough to land PSX on our ranking of the 30 Most Popular Stocks Among Hedge Funds, it does have numerous bulls among the billionaires tracked by our database, including Warren Buffett, ranking 14th among the 20 Dividend Stocks That Billionaires Are Piling On.

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 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Warren Buffett and Billionaires

What have hedge funds been doing with Phillips 66 (NYSE:PSX)?

At the end of the third quarter, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 16% increase from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PSX over the last 13 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PSX_nov2018

When looking at the institutional investors followed by Insider Monkey, Warren Buffett's Berkshire Hathaway has the largest position in Phillips 66 (NYSE:PSX), worth close to $1.74 billion, comprising 0.8% of its total 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $297.3 million position; 0.7% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions encompass Cliff Asness' AQR Capital Management, Israel Englander's Millennium Management and Jim Simons' Renaissance Technologies.

Consequently, key money managers were breaking ground themselves. Renaissance Technologies assembled the largest position in Phillips 66 (NYSE:PSX), having $110.9 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $101.8 million position during the quarter. The other funds with brand new PSX positions are David Costen Haley's HBK Investments, Vince Maddi and Shawn Brennan's SIR Capital Management, and Rob Citrone's Discovery Capital Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Phillips 66 (NYSE:PSX) but similarly valued. We will take a look at The Bank of New York Mellon Corporation (NYSE:BK), CIGNA Corporation (NYSE:CI), Norfolk Southern Corp. (NYSE:NSC), and ING Groep N.V. (NYSE:ING). All of these stocks' market caps are similar to PSX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BK,39,5628878,1 CI,60,3544851,11 NSC,49,2089375,7 ING,8,596028,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $2.97 billion. That figure was $3.18 billion in PSX's case. CIGNA Corporation (NYSE:CI) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 8 bullish hedge fund positions. Phillips 66 (NYSE:PSX) 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 really bullish on right now, like CI.

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

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