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Here’s What Hedge Funds Think About Phillips 66 (PSX)

Reymerlyn Martin

Is Phillips 66 (NYSE:PSX) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Phillips 66 (NYSE:PSX) investors should be aware of a decrease in hedge fund interest of late. PSX was in 43 hedge funds' portfolios at the end of the first quarter of 2019. There were 47 hedge funds in our database with PSX positions at the end of the previous quarter. Our calculations also showed that PSX isn't among the 30 most popular stocks among hedge funds.

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. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Matthew Hulsizer PEAK6 Capital

Let's go over the new hedge fund action surrounding Phillips 66 (NYSE:PSX).

How have hedgies been trading Phillips 66 (NYSE:PSX)?

Heading into the second quarter of 2019, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in PSX 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.

PSX_jun2019

More specifically, Berkshire Hathaway was the largest shareholder of Phillips 66 (NYSE:PSX), with a stake worth $528.5 million reported as of the end of March. Trailing Berkshire Hathaway was AQR Capital Management, which amassed a stake valued at $315.5 million. Two Sigma Advisors, D E Shaw, and East Side Capital (RR Partners) were also very fond of the stock, giving the stock large weights in their portfolios.

Because Phillips 66 (NYSE:PSX) has witnessed a decline in interest from the smart money, it's easy to see that there is a sect of hedge funds that slashed their positions entirely last quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest investment of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $12.3 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund sold off about $7.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let's go over hedge fund activity in other stocks similar to Phillips 66 (NYSE:PSX). We will take a look at Intercontinental Exchange Inc (NYSE:ICE), Orange (NYSE:ORAN), Workday Inc (NASDAQ:WDAY), and American Electric Power Company, Inc. (NYSE:AEP). This group of stocks' market caps match PSX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ICE,35,1777571,-6 ORAN,2,1103,0 WDAY,33,1399695,2 AEP,35,1229038,1 Average,26.25,1101852,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $1102 million. That figure was $1601 million in PSX's case. Intercontinental Exchange Inc (NYSE:ICE) is the most popular stock in this table. On the other hand Orange (NYSE:ORAN) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Phillips 66 (NYSE:PSX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately PSX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PSX were disappointed as the stock returned -12.9% during the same 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 13 of these stocks already outperformed the market in Q2.

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

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