The 10 largest U.S. hedge funds have made the most of the slide in the oil price, snapping up $1.5 billion in cheap energy stocks, making the sector the top buy of the last quarter of 2015.
Hedge funds had a tough 2015, with the 10 largest funds, falling from $203 billion at the start of the year to around $159 billion at the end as managers trimmed their holdings to protect their portfolios from the heightened market volatility, according to data from S&P Capital IQ.
Energy, along with financials has been the worst performing sector in the last six months, inspiring some investors to go bargain-hunting as most stocks are now trading at a considerable discount when compared to the start of 2015.
Pioneer Natural Resources and storage and transportation energy firm Williams Companies proved popular with some of the largest hedge funds as they bought $700 million and $589 million respectively, S&P analysis of regulatory filings to the SEC showed.
Both companies are trading at a considerable discount from mid-2015, with Williams Companies trading at around $15, compared to nearly $60 in early 2015 after oil prices have fallen as much as 70 percent since mid-2014.
Insurer American International Group (AIG) was the top buy, with Carl Icahn of Icahn Capital and billionaire investor Larry Robbins of Glenview Capital collectively picking up $2.52 billion in shares.
Stephen Mandel of Lone Pine Capital had an active final quarter of the year, selling out completely of pharmaceutical group Allergan and Lloyds Banking Group, positions worth $775 million and $903 million respectively. He also ditched $1 billion in Next shares.
"Overall the financial sector was the most sold amongst the hedge funds, Lloyds Banking Group being one of the most sold with $903 million. Perhaps this 13F (the form fund managers file with the SEC) analyses shows some insights into the belief of hedge funds that financial stocks would suffer going forward?" said head of market development for corporates at S&P Global Market Intelligence, Pavle Sabic.
"For example, from January 4th to February 15th 2016, the index fell 7.5 percent while the index of bank stocks fell 16 percent. Over the same period, the FTSE Eurofirst 300 fell 9.5 percent, while the index of bank stocks fell 19 percent. However, some contrarian investing has occurred with American International Group being number one bought stock with $2.5 billion mainly bought by Icahn Capital," he added.