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Hedge Funds Are Selling Phillips 66 (PSX)

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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Phillips 66 (NYSE:PSX).

Phillips 66 (NYSE:PSX) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. Phillips 66 (NYSE:PSX) was in 24 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 47. There were 26 hedge funds in our database with PSX holdings at the end of December. Our calculations also showed that PSX isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let's view the fresh hedge fund action regarding Phillips 66 (NYSE:PSX).

Do Hedge Funds Think PSX Is A Good Stock To Buy Now?

At the end of March, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. By comparison, 43 hedge funds held shares or bullish call options in PSX a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the number one position in Phillips 66 (NYSE:PSX). D E Shaw has a $93.4 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Paul Singer of Elliott Investment Management, with a $81.5 million call position; 0.6% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism contain Steven Richman's East Side Capital (RR Partners), Phill Gross and Robert Atchinson's Adage Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position East Side Capital (RR Partners) allocated the biggest weight to Phillips 66 (NYSE:PSX), around 6.62% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, earmarking 2.64 percent of its 13F equity portfolio to PSX.

Due to the fact that Phillips 66 (NYSE:PSX) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of hedgies who were dropping their positions entirely last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management said goodbye to the largest investment of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $24.3 million in stock. Suzi Nutton (CEO)'s fund, Lansdowne Partners, also dropped its stock, about $19.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Phillips 66 (NYSE:PSX). These stocks are PPG Industries, Inc. (NYSE:PPG), Alcon Inc. (NYSE:ALC), O'Reilly Automotive Inc (NASDAQ:ORLY), Paychex, Inc. (NASDAQ:PAYX), Barrick Gold Corporation (NYSE:GOLD), AFLAC Incorporated (NYSE:AFL), and Chewy, Inc. (NYSE:CHWY). This group of stocks' market valuations resemble PSX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PPG,25,173679,-9 ALC,23,753974,-1 ORLY,45,2704943,-4 PAYX,25,872105,-7 GOLD,49,1305890,-4 AFL,36,343937,1 CHWY,32,433780,-6 Average,33.6,941187,-4.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.6 hedge funds with bullish positions and the average amount invested in these stocks was $941 million. That figure was $291 million in PSX's case. Barrick Gold Corporation (NYSE:GOLD) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 23 bullish hedge fund positions. Phillips 66 (NYSE:PSX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PSX is 20.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately PSX wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); PSX investors were disappointed as the stock returned -7.7% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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