Forget AMC and GameStop, the hottest trade for hedge funds now is oil

Published Fri, Jun 4 202112:28 PM EDTUpdated Fri, Jun 4 20212:48 PM EDT

While a lot of the market's attention is focused on volatile stocks like AMC and GameStop, many hedge funds are zeroing in on another trade: oil. The commodity has been on a tear with surging demand as the global economy reopens. Brent is at a two-year high and WTI crude is at levels not seen since October of 2018. Maglan Capital, a New York-based hedge fund, has the commodity as its top position. In December 2020 when oil was in the high $30s, just as the FDA was issuing emergency authorization for the use of vaccines, co-founder David Tawil correctly predicted prices would double. He's now calling for oil to hit $100 a barrel by the end of the year. Tawil said in an interview that "supply is falling much faster than demand." But he acknowledged the world is moving away from carbon fuels saying, "there will be some growth over the next few years but this will become a melting ice cube very quickly, this isn't a forever asset." He also believes the targets companies and the government have set for weaning themselves off oil "are far too aggressive." The commodity itself is the best way to profit rather than getting in and out of stocks in the energy sector, according to Tawil. That strategy, however, can be more difficult for individual investors. Another big part of Maglan Capital's case for oil is many Americans are flush with cash and they are making plans to get out and spend it. Tawil also doesn't see OPEC making any major moves anytime soon, saying "they're in a place where they're happy." He also said "the cost of oil in this country will go up faster as the U.S. moves into a full blown re-opening." Many other hedge funds agree, but instead of playing the commodity they're pumping money into big-name oil stocks. The biggest mover in the sector has been D.E. Shaw Group. The firm's largest investment in the sector is a $261 million investment in Chevron made last quarter, according to recent filings. But in this case, they may have backed the wrong horse. The stock is up 27.5% so far in 2021, ranking third to last in the S & P Energy sector, which is up 45% this year. Symmetric, which tracks hedge fund activity, also shows D.E. Shaw has been a big buyer of Exxon , Hess , Williams Cos ., Phillips 66 and Marathon Oil . Marathon Oil has more than doubled so far this year. For the week, the shares are up 15% after several Wall Street analysts upgraded the stock. Besides D.E. Shaw, Marathon is also attracting investments from Voloridge Investment, Two Sigma, Gotham Asset Management and Tudor Investment, according to Symmetric.

Oil storage containers are seen, amid the coronavirus disease (COVID-19) pandemic, in Los Angeles, California, U.S., April 7, 2021.

Lucy Nicholson | Reuters

While a lot of the market's attention is focused on volatile stocks like AMC and GameStop, many hedge funds are zeroing in on another trade: oil.

The commodity has been on a tear with surging demand as the global economy reopens.

Brent is at a two-year high and WTI crude is at levels not seen since October of 2018.

Maglan Capital, a New York-based hedge fund, has the commodity as its top position. In December 2020 when oil was in the high $30s, just as the FDA was issuing emergency authorization for the use of vaccines, co-founder David Tawil correctly predicted prices would double.

He's now calling for oil to hit $100 a barrel by the end of the year.