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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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards HollyFrontier Corporation (NYSE:HFC).
HollyFrontier Corporation (NYSE:HFC) was in 30 hedge funds' portfolios at the end of December. HFC investors should be aware of a decrease in hedge fund interest of late. There were 31 hedge funds in our database with HFC positions at the end of the previous quarter. Our calculations also showed that HFC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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. 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 S&P 500 ETFs by 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 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.
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John Overdeck of Two Sigma Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a glance at the fresh hedge fund action encompassing HollyFrontier Corporation (NYSE:HFC).
Hedge fund activity in HollyFrontier Corporation (NYSE:HFC)
Heading into the first quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in HFC a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in HollyFrontier Corporation (NYSE:HFC) was held by AQR Capital Management, which reported holding $144.8 million worth of stock at the end of September. It was followed by D E Shaw with a $48.6 million position. Other investors bullish on the company included Two Sigma Advisors, Renaissance Technologies, and Millennium Management. In terms of the portfolio weights assigned to each position Centenus Global Management allocated the biggest weight to HollyFrontier Corporation (NYSE:HFC), around 0.8% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, designating 0.53 percent of its 13F equity portfolio to HFC.
Due to the fact that HollyFrontier Corporation (NYSE:HFC) has witnessed declining sentiment from hedge fund managers, we can see that there exists a select few hedge funds that slashed their full holdings in the third quarter. Interestingly, Todd J. Kantor's Encompass Capital Advisors sold off the largest investment of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $42.1 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also sold off its stock, about $16.9 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as HollyFrontier Corporation (NYSE:HFC) but similarly valued. We will take a look at Invesco Ltd. (NYSE:IVZ), Pilgrim's Pride Corporation (NASDAQ:PPC), Bunge Limited (NYSE:BG), and Newell Brands Inc. (NYSE:NWL). This group of stocks' market valuations are similar to HFC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IVZ,24,252642,-2 PPC,24,299579,-2 BG,37,689916,0 NWL,31,1424124,-1 Average,29,666565,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $667 million. That figure was $383 million in HFC's case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Invesco Ltd. (NYSE:IVZ) is the least popular one with only 24 bullish hedge fund positions. HollyFrontier Corporation (NYSE:HFC) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately HFC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HFC were disappointed as the stock returned -57.8% 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.