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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Scorpio Tankers Inc. (NYSE:STNG) to find out whether there were any major changes in hedge funds' views.
Is STNG a good stock to buy now? Hedge funds were getting less optimistic. The number of long hedge fund positions fell by 4 in recent months. Scorpio Tankers Inc. (NYSE:STNG) was in 14 hedge funds' portfolios at the end of September. The all time high for this statistic is 33. Our calculations also showed that STNG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 18 hedge funds in our database with STNG positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind we're going to take a look at the recent hedge fund action encompassing Scorpio Tankers Inc. (NYSE:STNG).
Do Hedge Funds Think STNG Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the second quarter of 2020. By comparison, 25 hedge funds held shares or bullish call options in STNG a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Scorpio Tankers Inc. (NYSE:STNG) was held by Hosking Partners, which reported holding $13.9 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $5.5 million position. Other investors bullish on the company included Citadel Investment Group, PEAK6 Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Game Creek Capital allocated the biggest weight to Scorpio Tankers Inc. (NYSE:STNG), around 1.44% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, designating 0.43 percent of its 13F equity portfolio to STNG.
Because Scorpio Tankers Inc. (NYSE:STNG) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedgies that slashed their entire stakes heading into Q4. At the top of the heap, Kenneth Tropin's Graham Capital Management sold off the biggest position of all the hedgies tracked by Insider Monkey, worth close to $10.7 million in stock, and Angela Aldrich's Bayberry Capital Partners was right behind this move, as the fund sold off about $7.4 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 4 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to Scorpio Tankers Inc. (NYSE:STNG). We will take a look at TPG RE Finance Trust, Inc. (NYSE:TRTX), Hibbett Sports, Inc. (NASDAQ:HIBB), Sculptor Capital Management, Inc. (NYSE:SCU), Apollo Medical Holdings, Inc. (NASDAQ:AMEH), Frequency Therapeutics, Inc. (NASDAQ:FREQ), Crescent Point Energy Corp (NYSE:CPG), and HighPeak Energy, Inc. (NASDAQ:HPK). All of these stocks' market caps resemble STNG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRTX,13,74230,-1 HIBB,21,181894,0 SCU,13,60894,3 AMEH,7,3533,4 FREQ,7,88452,1 CPG,11,23697,2 HPK,1,87,1 Average,10.4,61827,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.4 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $30 million in STNG's case. Hibbett Sports, Inc. (NASDAQ:HIBB) is the most popular stock in this table. On the other hand HighPeak Energy, Inc. (NASDAQ:HPK) is the least popular one with only 1 bullish hedge fund positions. Scorpio Tankers Inc. (NYSE:STNG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STNG is 46.2. 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 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately STNG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on STNG were disappointed as the stock returned 10.3% since the end of September (through 12/8) 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.
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Disclosure: None. This article was originally published at Insider Monkey.