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Published on 10 Nov 2021 on Insider Monkey via Yahoo Finance

Were Hedge Funds Right About Valero Energy Corporation (VLO)?


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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Valero Energy Corporation (NYSE:VLO).

Is Valero Energy Corporation (NYSE:VLO) a cheap investment right now? Hedge funds were selling. The number of bullish hedge fund bets dropped by 3 in recent months. Valero Energy Corporation (NYSE:VLO) was in 38 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 56. Our calculations also showed that VLO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

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