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 Marathon Petroleum Corp (NYSE:MPC).
Marathon Petroleum Corp (NYSE:MPC) has experienced an increase in hedge fund sentiment in recent months. MPC was in 63 hedge funds' portfolios at the end of September. There were 60 hedge funds in our database with MPC positions at the end of the previous quarter. Our calculations also showed that MPC isn't among the 30 most popular stocks among hedge funds.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26345" align="aligncenter" width="600"] Paul Singer of Elliott Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the latest hedge fund action encompassing Marathon Petroleum Corp (NYSE:MPC).
How are hedge funds trading Marathon Petroleum Corp (NYSE:MPC)?
At Q3's end, a total of 63 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the second quarter of 2019. On the other hand, there were a total of 66 hedge funds with a bullish position in MPC a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Elliott Management held the most valuable stake in Marathon Petroleum Corp (NYSE:MPC), which was worth $522.3 million at the end of the third quarter. On the second spot was Steadfast Capital Management which amassed $352.3 million worth of shares. Iridian Asset Management, Millennium Management, and Adage Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Swift Run Capital Management allocated the biggest weight to Marathon Petroleum Corp (NYSE:MPC), around 10.15% of its portfolio. Steadfast Capital Management is also relatively very bullish on the stock, designating 4.8 percent of its 13F equity portfolio to MPC.
As aggregate interest increased, key money managers were breaking ground themselves. Whitebox Advisors, managed by Andy Redleaf, initiated the most outsized position in Marathon Petroleum Corp (NYSE:MPC). Whitebox Advisors had $47.4 million invested in the company at the end of the quarter. Mark Kingdon's Kingdon Capital also made a $30.6 million investment in the stock during the quarter. The other funds with brand new MPC positions are Stephen J. Errico's Locust Wood Capital Advisers, Todd J. Kantor's Encompass Capital Advisors, and Joel Greenblatt's Gotham Asset Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Marathon Petroleum Corp (NYSE:MPC) but similarly valued. These stocks are Occidental Petroleum Corporation (NYSE:OXY), Ross Stores, Inc. (NASDAQ:ROST), Constellation Brands, Inc. (NYSE:STZ), and Telefonica S.A. (NYSE:TEF). This group of stocks' market valuations match MPC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OXY,57,2774136,15 ROST,39,1067484,7 STZ,41,1671280,3 TEF,5,34830,-2 Average,35.5,1386933,5.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1387 million. That figure was $2859 million in MPC's case. Occidental Petroleum Corporation (NYSE:OXY) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Marathon Petroleum Corp (NYSE:MPC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately MPC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MPC were disappointed as the stock returned 3.5% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.