Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 8.5 percentage points through November 22nd. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Sunoco LP (NYSE:SUN) was in 3 hedge funds' portfolios at the end of September. SUN investors should be aware of a decrease in hedge fund sentiment lately. There were 6 hedge funds in our database with SUN holdings at the end of the previous quarter. Our calculations also showed that SUN 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_221556" align="aligncenter" width="450"] Richard Driehaus of Driehaus Capital[/caption]
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 fresh hedge fund action surrounding Sunoco LP (NYSE:SUN).
Hedge fund activity in Sunoco LP (NYSE:SUN)
At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -50% from the second quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in SUN 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.
Among these funds, Intrinsic Edge Capital held the most valuable stake in Sunoco LP (NYSE:SUN), which was worth $3.8 million at the end of the third quarter. On the second spot was Driehaus Capital which amassed $2.3 million worth of shares. Citadel Investment Group was 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 Intrinsic Edge Capital allocated the biggest weight to Sunoco LP (NYSE:SUN), around 0.42% of its portfolio. Driehaus Capital is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to SUN.
Because Sunoco LP (NYSE:SUN) has witnessed falling interest from the aggregate hedge fund industry, it's easy to see that there exists a select few hedgies that slashed their entire stakes heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the largest position of all the hedgies monitored by Insider Monkey, totaling close to $8.9 million in stock. Renaissance Technologies, also dropped its stock, about $3.2 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to Sunoco LP (NYSE:SUN). These stocks are Arco Platform Limited (NASDAQ:ARCE), Vermilion Energy Inc (NYSE:VET), Cohen & Steers, Inc. (NYSE:CNS), and Cogent Communications Holdings, Inc. (NASDAQ:CCOI). All of these stocks' market caps are similar to SUN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARCE,12,60723,3 VET,10,46500,3 CNS,16,76446,1 CCOI,26,303103,8 Average,16,121693,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $7 million in SUN's case. Cogent Communications Holdings, Inc. (NASDAQ:CCOI) is the most popular stock in this table. On the other hand Vermilion Energy Inc (NYSE:VET) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Sunoco LP (NYSE:SUN) is even less popular than VET. Hedge funds dodged a bullet by taking a bearish stance towards SUN. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately SUN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SUN investors were disappointed as the stock returned 1.9% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.