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Hedge Funds Are Souring On Suncor Energy Inc. (SU)

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In this article we will check out the progression of hedge fund sentiment towards Suncor Energy Inc. (NYSE:SU) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Suncor Energy Inc. (NYSE:SU) shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. Suncor Energy Inc. (NYSE:SU) was in 32 hedge funds' portfolios at the end of June. The all time high for this statistic is 41. There were 33 hedge funds in our database with SU holdings at the end of March. Our calculations also showed that SU isn't among the 30 most popular stocks among hedge funds (click for Q2 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Billionaire Dan Loeb's Top 10 Stock Picks
Billionaire Dan Loeb's Top 10 Stock Picks

Dan Loeb of Third Point

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. Keeping this in mind let's go over the fresh hedge fund action encompassing Suncor Energy Inc. (NYSE:SU).

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

At the end of June, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. On the other hand, there were a total of 29 hedge funds with a bullish position in SU a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, D. E. Shaw's D E Shaw has the number one position in Suncor Energy Inc. (NYSE:SU), worth close to $269.3 million, accounting for 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Lyrical Asset Management, managed by Andrew Wellington and Jeff Keswin, which holds a $240.7 million position; the fund has 2.9% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions include Dan Loeb's Third Point, Noam Gottesman's GLG Partners and Brandon Haley's Holocene Advisors. In terms of the portfolio weights assigned to each position NewGen Asset Management allocated the biggest weight to Suncor Energy Inc. (NYSE:SU), around 4.88% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, setting aside 3.84 percent of its 13F equity portfolio to SU.

Judging by the fact that Suncor Energy Inc. (NYSE:SU) has faced falling interest from hedge fund managers, it's safe to say that there exists a select few hedge funds who sold off their positions entirely by the end of the second quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP dropped the largest position of the 750 funds followed by Insider Monkey, worth about $105.9 million in stock. Richard SchimeláandáLawrence Sapanski's fund, Cinctive Capital Management, also sold off its stock, about $7.4 million worth. These transactions are important to note, as total hedge fund interest fell by 1 funds by the end of the second quarter.

Let's now review hedge fund activity in other stocks similar to Suncor Energy Inc. (NYSE:SU). We will take a look at Discover Financial Services (NYSE:DFS), The Hershey Company (NYSE:HSY), ResMed Inc. (NYSE:RMD), XPeng Inc. (NYSE:XPEV), Cummins Inc. (NYSE:CMI), Xilinx, Inc. (NASDAQ:XLNX), and TransDigm Group Incorporated (NYSE:TDG). This group of stocks' market values resemble SU's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DFS,37,450985,-8 HSY,38,1229056,-4 RMD,26,428212,1 XPEV,19,784609,0 CMI,45,1102223,8 XLNX,59,4162249,2 TDG,57,7351832,-5 Average,40.1,2215595,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.1 hedge funds with bullish positions and the average amount invested in these stocks was $2216 million. That figure was $1116 million in SU's case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand XPeng Inc. (NYSE:XPEV) is the least popular one with only 19 bullish hedge fund positions. Suncor Energy Inc. (NYSE:SU) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SU is 43.7. 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 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 24.9% in 2021 through October 15th and surpassed the market again by 4.5 percentage points. Unfortunately SU wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SU investors were disappointed as the stock returned -1% since the end of June (through 10/15) 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.