Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Equinor ASA (NYSE:EQNR).
Is Equinor ASA (NYSE:EQNR) a great investment right now? The smart money is taking a bearish view. The number of long hedge fund bets shrunk by 1 lately. Our calculations also showed that EQNR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). EQNR was in 14 hedge funds' portfolios at the end of December. There were 15 hedge funds in our database with EQNR positions 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_25251" align="aligncenter" width="400"] George Soros of Soros Fund Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let's view the fresh hedge fund action regarding Equinor ASA (NYSE:EQNR).
What does smart money think about Equinor ASA (NYSE:EQNR)?
Heading into the first quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in EQNR a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Equinor ASA (NYSE:EQNR) was held by Renaissance Technologies, which reported holding $246.1 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $85 million position. Other investors bullish on the company included Fisher Asset Management, Deep Basin Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Equinor ASA (NYSE:EQNR), around 1.3% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, setting aside 0.45 percent of its 13F equity portfolio to EQNR.
Judging by the fact that Equinor ASA (NYSE:EQNR) has witnessed a decline in interest from hedge fund managers, we can see that there exists a select few funds who sold off their full holdings last quarter. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management sold off the largest investment of the "upper crust" of funds watched by Insider Monkey, comprising about $9.3 million in stock. Israel Englander's fund, Millennium Management, also said goodbye to its stock, about $2.6 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Equinor ASA (NYSE:EQNR). These stocks are Target Corporation (NYSE:TGT), Canadian National Railway Company (NYSE:CNI), Zoetis Inc (NYSE:ZTS), and Boston Scientific Corporation (NYSE:BSX). All of these stocks' market caps are closest to EQNR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TGT,53,2495450,-2 CNI,29,2000657,0 ZTS,48,2230316,-5 BSX,54,3207627,2 Average,46,2483513,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $2484 million. That figure was $425 million in EQNR's case. Boston Scientific Corporation (NYSE:BSX) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Equinor ASA (NYSE:EQNR) is even less popular than CNI. Hedge funds dodged a bullet by taking a bearish stance towards EQNR. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately EQNR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EQNR investors were disappointed as the stock returned -43.2% during the same time period 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 most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.