Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. 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 increasing their overall exposure in the second quarter 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 Marathon Oil Corporation (NYSE:MRO).
Is Marathon Oil Corporation (NYSE:MRO) a safe investment now? Prominent investors are getting less bullish. The number of bullish hedge fund positions retreated by 5 recently. Our calculations also showed that MRO isn't among the 30 most popular stocks among hedge funds (view the video below). MRO was in 32 hedge funds' portfolios at the end of June. There were 37 hedge funds in our database with MRO holdings at the end of the previous quarter. Video: Click the image to 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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to view the recent hedge fund action encompassing Marathon Oil Corporation (NYSE:MRO).
Hedge fund activity in Marathon Oil Corporation (NYSE:MRO)
At the end of the second quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MRO over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Marathon Oil Corporation (NYSE:MRO) was held by D E Shaw, which reported holding $102.1 million worth of stock at the end of March. It was followed by Encompass Capital Advisors with a $79.3 million position. Other investors bullish on the company included Point72 Asset Management, Fisher Asset Management, and AQR Capital Management.
Since Marathon Oil Corporation (NYSE:MRO) has faced falling interest from hedge fund managers, it's safe to say that there exists a select few hedgies that decided to sell off their entire stakes by the end of the second quarter. It's worth mentioning that Renaissance Technologies sold off the biggest stake of all the hedgies tracked by Insider Monkey, valued at close to $80.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund said goodbye to about $50.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks similar to Marathon Oil Corporation (NYSE:MRO). These stocks are FMC Corporation (NYSE:FMC), Mohawk Industries, Inc. (NYSE:MHK), PerkinElmer, Inc. (NYSE:PKI), and Vistra Energy Corp. (NYSE:VST). This group of stocks' market values are closest to MRO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FMC,36,1206447,7 MHK,33,1990526,-1 PKI,24,971959,-1 VST,39,2308414,-9 Average,33,1619337,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1619 million. That figure was $494 million in MRO's case. Vistra Energy Corp. (NYSE:VST) is the most popular stock in this table. On the other hand PerkinElmer, Inc. (NYSE:PKI) is the least popular one with only 24 bullish hedge fund positions. Marathon Oil Corporation (NYSE:MRO) is not the least popular stock in this group but hedge fund interest is still below average. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MRO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MRO investors were disappointed as the stock returned -13.3% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.