Hedge Funds Aren’t Excited About BP plc (BP)

Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.

BP plc (NYSE:BP) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 29 hedge funds' portfolios at the end of the second quarter of 2019. At the end of this article we will also compare BP to other stocks including Paypal Holdings Inc (NASDAQ:PYPL), NIKE, Inc. (NYSE:NKE), and Medtronic plc (NYSE:MDT) to get a better sense of its popularity.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. Let's take a peek at the latest hedge fund action surrounding BP plc (NYSE:BP).

What have hedge funds been doing with BP plc (NYSE:BP)?

At Q2's end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in BP a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jim Simons's Renaissance Technologies has the largest position in BP plc (NYSE:BP), worth close to $512 million, comprising 0.5% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $292.2 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism encompass William B. Gray's Orbis Investment Management, Irving Kahn's Kahn Brothers and Anand Parekh's Alyeska Investment Group.

Seeing as BP plc (NYSE:BP) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few fund managers who were dropping their full holdings heading into Q3. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest investment of the 750 funds watched by Insider Monkey, totaling an estimated $31.9 million in stock. Sara Nainzadeh's fund, Centenus Global Management, also sold off its stock, about $4.2 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as BP plc (NYSE:BP) but similarly valued. These stocks are Paypal Holdings Inc (NASDAQ:PYPL), NIKE, Inc. (NYSE:NKE), Medtronic plc (NYSE:MDT), and BHP Group (NYSE:BBL). This group of stocks' market values resemble BP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PYPL,95,3857093,2 NKE,51,1918137,-2 MDT,49,2317404,-1 BBL,20,1040801,-1 Average,53.75,2283359,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.75 hedge funds with bullish positions and the average amount invested in these stocks was $2283 million. That figure was $1246 million in BP's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand BHP Group (NYSE:BBL) is the least popular one with only 20 bullish hedge fund positions. BP plc (NYSE:BP) is not the least popular stock in this group but hedge fund interest is still below average. 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 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. Unfortunately BP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BP investors were disappointed as the stock returned -7.4% during the third quarter 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 (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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