It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Valero Energy Corporation (NYSE:VLO).
Hedge fund interest in Valero Energy Corporation (NYSE:VLO) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Ecopetrol S.A. (NYSE:EC), Johnson Controls International plc (NYSE:JCI), and Eaton Corporation plc (NYSE:ETN) to gather more data points. Our calculations also showed that VLO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most investors, hedge funds are seen as unimportant, outdated financial tools of yesteryear. While there are more than 8000 funds with their doors open today, Our researchers hone in on the crème de la crème of this club, approximately 750 funds. Most estimates calculate that this group of people have their hands on bulk of the smart money's total asset base, and by tracking their highest performing equity investments, Insider Monkey has formulated numerous investment strategies that have historically defeated the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital 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. We're going to analyze the new hedge fund action regarding Valero Energy Corporation (NYSE:VLO).
Hedge fund activity in Valero Energy Corporation (NYSE:VLO)
At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VLO over the last 17 quarters. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Valero Energy Corporation (NYSE:VLO), which was worth $103.1 million at the end of the third quarter. On the second spot was D E Shaw which amassed $95.2 million worth of shares. Millennium Management, Adage Capital Management, and Holocene Advisors 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 GeoSphere Capital Management allocated the biggest weight to Valero Energy Corporation (NYSE:VLO), around 3.59% of its portfolio. Game Creek Capital is also relatively very bullish on the stock, setting aside 2.74 percent of its 13F equity portfolio to VLO.
Seeing as Valero Energy Corporation (NYSE:VLO) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedgies that slashed their full holdings in the third quarter. Intriguingly, David Rosen's Rubric Capital Management cut the biggest position of all the hedgies monitored by Insider Monkey, comprising an estimated $27.3 million in stock, and Anand Parekh's Alyeska Investment Group was right behind this move, as the fund sold off about $25.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Valero Energy Corporation (NYSE:VLO). We will take a look at Ecopetrol S.A. (NYSE:EC), Johnson Controls International plc (NYSE:JCI), Eaton Corporation plc (NYSE:ETN), and Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA). This group of stocks' market caps are closest to VLO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EC,10,174854,0 JCI,22,598575,4 ETN,31,463777,-5 BBVA,9,275548,2 Average,18,378189,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $378 million. That figure was $530 million in VLO's case. Eaton Corporation plc (NYSE:ETN) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Valero Energy Corporation (NYSE:VLO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on VLO as the stock returned 13% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.