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Were Hedge Funds Right About Dumping Exxon Mobil Corporation (XOM)?

Abigail Fisher
·6 min read

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Exxon Mobil Corporation (NYSE:XOM).

Exxon Mobil Corporation (NYSE:XOM) was in 53 hedge funds' portfolios at the end of June. The all time high for this statistics is 68. XOM investors should pay attention to a decrease in hedge fund sentiment lately. There were 65 hedge funds in our database with XOM holdings at the end of March. Our calculations also showed that XOM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management
Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let's review the new hedge fund action encompassing Exxon Mobil Corporation (NYSE:XOM).

How have hedgies been trading Exxon Mobil Corporation (NYSE:XOM)?

At the end of the second quarter, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards XOM over the last 20 quarters. 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, Fisher Asset Management held the most valuable stake in Exxon Mobil Corporation (NYSE:XOM), which was worth $320.6 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $202.1 million worth of shares. Citadel Investment Group, Pzena Investment Management, and D E Shaw 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 ZWEIG DIMENNA PARTNERS allocated the biggest weight to Exxon Mobil Corporation (NYSE:XOM), around 3.02% of its 13F portfolio. Stamos Capital is also relatively very bullish on the stock, dishing out 2.66 percent of its 13F equity portfolio to XOM.

Because Exxon Mobil Corporation (NYSE:XOM) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few fund managers that decided to sell off their full holdings in the second quarter. Interestingly, Simon Sadler's Segantii Capital sold off the biggest investment of all the hedgies monitored by Insider Monkey, worth an estimated $9.2 million in stock. Richard SchimeláandáLawrence Sapanski's fund, Cinctive Capital Management, also dropped its stock, about $4.3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 12 funds in the second quarter.

Let's check out hedge fund activity in other stocks similar to Exxon Mobil Corporation (NYSE:XOM). These stocks are PepsiCo, Inc. (NASDAQ:PEP), Pfizer Inc. (NYSE:PFE), Comcast Corporation (NASDAQ:CMCSA), Toyota Motor Corporation (NYSE:TM), AbbVie Inc (NYSE:ABBV), Oracle Corporation (NYSE:ORCL), and salesforce.com, inc. (NYSE:CRM). This group of stocks' market caps match XOM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEP,53,3156792,-4 PFE,66,2139163,-1 CMCSA,80,7207135,-3 TM,13,719379,2 ABBV,89,6226917,8 ORCL,49,2312027,1 CRM,107,9769139,-10 Average,65.3,4504365,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 65.3 hedge funds with bullish positions and the average amount invested in these stocks was $4504 million. That figure was $1115 million in XOM's case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 13 bullish hedge fund positions. Exxon Mobil Corporation (NYSE:XOM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XOM is 37.7. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and surpassed the market by 21 percentage points. Unfortunately XOM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); XOM investors were disappointed as the stock returned -22.1% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.

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