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Is Phillips 66 (PSX) Going to Burn These Hedge Funds?

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The Insider Monkey team has completed processing the quarterly 13F filings for the June 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 Phillips 66 (NYSE:PSX).

Phillips 66 (NYSE:PSX) investors should be aware of an increase in hedge fund sentiment of late. Phillips 66 (NYSE:PSX) was in 26 hedge funds' portfolios at the end of June. The all time high for this statistic is 47. There were 24 hedge funds in our database with PSX positions at the end of the first quarter. Our calculations also showed that PSX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Sander Gerber Hudson Bay Capital Management
Sander Gerber Hudson Bay Capital Management

Sander Gerber of Hudson Bay Capital Management

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. Now we're going to go over the recent hedge fund action regarding Phillips 66 (NYSE:PSX).

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

At Q2's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the first quarter of 2020. By comparison, 42 hedge funds held shares or bullish call options in PSX a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PSX A Good Stock To Buy?
Is PSX A Good Stock To Buy?

Among these funds, D E Shaw held the most valuable stake in Phillips 66 (NYSE:PSX), which was worth $93.9 million at the end of the second quarter. On the second spot was Millennium Management which amassed $51.1 million worth of shares. Citadel Investment Group, Adage Capital Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Hi-Line Capital Management allocated the biggest weight to Phillips 66 (NYSE:PSX), around 2.67% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, setting aside 1.69 percent of its 13F equity portfolio to PSX.

Now, some big names were leading the bulls' herd. SIR Capital Management, managed by Vince Maddi and Shawn Brennan, assembled the most valuable position in Phillips 66 (NYSE:PSX). SIR Capital Management had $11.4 million invested in the company at the end of the quarter. Todd J. Kantor's Encompass Capital Advisors also initiated a $9.2 million position during the quarter. The other funds with new positions in the stock are Sander Gerber's Hudson Bay Capital Management, Israel Englander's Millennium Management, and Qing Li's Sciencast Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Phillips 66 (NYSE:PSX) but similarly valued. We will take a look at Okta, Inc. (NASDAQ:OKTA), International Flavors & Fragrances Inc (NYSE:IFF), General Mills, Inc. (NYSE:GIS), Peloton Interactive, Inc. (NASDAQ:PTON), The Trade Desk, Inc. (NASDAQ:TTD), Motorola Solutions Inc (NYSE:MSI), and Barrick Gold Corporation (NYSE:GOLD). All of these stocks' market caps resemble PSX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OKTA,57,2090544,9 IFF,52,3289883,-3 GIS,37,744914,6 PTON,67,6123849,3 TTD,25,719961,-10 MSI,37,1468893,8 GOLD,47,1234897,-2 Average,46,2238992,1.6 [/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 $2239 million. That figure was $296 million in PSX's case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand The Trade Desk, Inc. (NASDAQ:TTD) is the least popular one with only 25 bullish hedge fund positions. Phillips 66 (NYSE:PSX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PSX is 24.8. 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 PSX wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); PSX investors were disappointed as the stock returned -4.2% 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.