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Hedge Funds Are Dumping Exxon Mobil Corporation (XOM)

Asma UL Husna
·6 mins read

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Exxon Mobil Corporation (NYSE:XOM) and determine whether hedge funds had an edge regarding this stock.

Is Exxon Mobil Corporation (NYSE:XOM) a buy here? Hedge funds were in a bearish mood. The number of bullish hedge fund positions were cut by 12 in recent months. Exxon Mobil Corporation (NYSE:XOM) was in 53 hedge funds' portfolios at the end of June. The all time high for this statistics is 68. Our calculations also showed that XOM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 65 hedge funds in our database with XOM holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management
Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let's view the new hedge fund action surrounding Exxon Mobil Corporation (NYSE:XOM).

How have hedgies been trading Exxon Mobil Corporation (NYSE:XOM)?

Heading into the third quarter of 2020, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards XOM over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Exxon Mobil Corporation (NYSE:XOM) was held by Fisher Asset Management, which reported holding $320.6 million worth of stock at the end of September. It was followed by Adage Capital Management with a $202.1 million position. Other investors bullish on the company included Citadel Investment Group, Pzena Investment Management, and D E Shaw. In terms of the portfolio weights assigned to each position ZWEIG DIMENNA PARTNERS allocated the biggest weight to Exxon Mobil Corporation (NYSE:XOM), around 3.02% of its 13F portfolio. Stamos Capital is also relatively very bullish on the stock, setting aside 2.66 percent of its 13F equity portfolio to XOM.

Since Exxon Mobil Corporation (NYSE:XOM) has experienced a decline in interest from hedge fund managers, it's easy to see that there was a specific group of fund managers that elected to cut their entire stakes heading into Q3. It's worth mentioning that Simon Sadler's Segantii Capital sold off the biggest stake of the 750 funds tracked by Insider Monkey, totaling close to $9.2 million in stock, and Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management was right behind this move, as the fund dumped about $4.3 million worth. These moves are important to note, as total hedge fund interest fell by 12 funds heading into Q3.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Exxon Mobil Corporation (NYSE:XOM) but similarly valued. These stocks are PepsiCo, Inc. (NASDAQ:PEP), Pfizer Inc. (NYSE:PFE), Comcast Corporation (NASDAQ:CMCSA), Toyota Motor Corporation (NYSE:TM), AbbVie Inc (NYSE:ABBV), Oracle Corporation (NYSE:ORCL), and salesforce.com, inc. (NYSE:CRM). All of these stocks' market caps are closest to XOM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEP,53,3156792,-4 PFE,66,2139163,-1 CMCSA,80,7207135,-3 TM,13,719379,2 ABBV,89,6226917,8 ORCL,49,2312027,1 CRM,107,9769139,-10 Average,65.3,4504365,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 65.3 hedge funds with bullish positions and the average amount invested in these stocks was $4504 million. That figure was $1115 million in XOM's case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 13 bullish hedge fund positions. Exxon Mobil Corporation (NYSE:XOM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XOM is 37.7. 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 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately XOM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); XOM investors were disappointed as the stock returned -8.9% since Q2 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.

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

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