Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Sunoco LP (NYSE:SUN) changed recently.
Sunoco LP (NYSE:SUN) investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. SUN was in 6 hedge funds' portfolios at the end of the second quarter of 2019. There were 7 hedge funds in our database with SUN positions at the end of the previous quarter. Our calculations also showed that SUN isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
At the moment there are numerous gauges stock traders use to size up publicly traded companies. Two of the most useful gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the best investment managers can outpace the market by a significant margin (see the details here).
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to analyze the key hedge fund action encompassing Sunoco LP (NYSE:SUN).
How have hedgies been trading Sunoco LP (NYSE:SUN)?
Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SUN over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in Sunoco LP (NYSE:SUN), which was worth $8.9 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $3.2 million worth of shares. Moreover, Citadel Investment Group, Citadel Investment Group, and Driehaus Capital were also bullish on Sunoco LP (NYSE:SUN), allocating a large percentage of their portfolios to this stock.
Seeing as Sunoco LP (NYSE:SUN) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few funds who were dropping their full holdings heading into Q3. Intriguingly, Charles Davidson and Joseph Jacobs's Wexford Capital dropped the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $2.4 million in stock, and Matthew Halbower's Pentwater Capital Management was right behind this move, as the fund cut about $1.9 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to Sunoco LP (NYSE:SUN). We will take a look at Crestwood Equity Partners LP (NYSE:CEQP), Pampa Energia S.A. (NYSE:PAM), Avis Budget Group Inc. (NASDAQ:CAR), and AAON, Inc. (NASDAQ:AAON). This group of stocks' market caps are closest to SUN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CEQP,4,21805,0 PAM,12,307774,-9 CAR,21,1045588,-7 AAON,6,6146,1 Average,10.75,345328,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $345 million. That figure was $15 million in SUN's case. Avis Budget Group Inc. (NASDAQ:CAR) is the most popular stock in this table. On the other hand Crestwood Equity Partners LP (NYSE:CEQP) is the least popular one with only 4 bullish hedge fund positions. Sunoco LP (NYSE:SUN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SUN, though not to the same extent, as the stock returned 3.1% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.