U.S. Markets closed

Hedge Funds Warming Up To Valvoline Inc. (VVV)

Nina Todic

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Valvoline Inc. (NYSE:VVV).

Valvoline Inc. (NYSE:VVV) has seen an increase in hedge fund interest lately. Our calculations also showed that VVV 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.

5 Most Popular Stocks Among Hedge Funds

If you'd ask most traders, hedge funds are viewed as unimportant, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation at present, We hone in on the bigwigs of this club, around 750 funds. These investment experts command bulk of the hedge fund industry's total asset base, and by tailing their finest investments, Insider Monkey has determined a few investment strategies that have historically surpassed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year 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_375529" align="aligncenter" width="450"] Mario Gabelli of GAMCO Investors[/caption]

Mario Gabelli of GAMCO Investors

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. Let's take a look at the key hedge fund action surrounding Valvoline Inc. (NYSE:VVV).

What does smart money think about Valvoline Inc. (NYSE:VVV)?

At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in VVV a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

No of Hedge Funds with VVV Positions

The largest stake in Valvoline Inc. (NYSE:VVV) was held by Tensile Capital, which reported holding $70.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $56.6 million position. Other investors bullish on the company included D E Shaw, GAMCO Investors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Tensile Capital allocated the biggest weight to Valvoline Inc. (NYSE:VVV), around 8.91% of its portfolio. Freshford Capital Management is also relatively very bullish on the stock, dishing out 4.73 percent of its 13F equity portfolio to VVV.

With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Millennium Management, managed by Israel Englander, created the most valuable position in Valvoline Inc. (NYSE:VVV). Millennium Management had $17.4 million invested in the company at the end of the quarter. Louis Bacon's Moore Global Investments also initiated a $3.3 million position during the quarter. The following funds were also among the new VVV investors: Matthew Tewksbury's Stevens Capital Management, Steve Cohen's Point72 Asset Management, and Bruce Kovner's Caxton Associates.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Valvoline Inc. (NYSE:VVV) but similarly valued. These stocks are EnLink Midstream LLC (NYSE:ENLC), RBC Bearings Incorporated (NASDAQ:ROLL), Sterling Bancorp (NYSE:STL), and Lumentum Holdings Inc (NASDAQ:LITE). All of these stocks' market caps match VVV's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENLC,12,38220,0 ROLL,7,61593,1 STL,23,407369,2 LITE,29,219330,-1 Average,17.75,181628,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $333 million in VVV's case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 7 bullish hedge fund positions. Valvoline Inc. (NYSE:VVV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately VVV wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VVV were disappointed as the stock returned 3.3% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

Related Content