Whenever retail investors can get the latest data on investment flows, they should pay attention to it. Not only to find out who is buying what and which asset classes (or individual stocks) may be in favor in the coming months, but also so that they can connect the dots with any trends and themes developing in the broader markets and in economics.
So, instead of blindly following a hedge fund manager or mega-investor, there is a chance to learn the deeper reasons why something might be bought or sold, which is especially important when considering exiting a position. That’s why today’s hedge fund buying activity in the energy sector, especially the oil sector, is important to consider not on its own, but by linking that buying preference to price action in other markets as a whole.
To keep an eye on the sector as a whole, investors can look beyond oil prices to look at the bigger picture. Select Energy Sector SPDR Fund NEW SIRKA: XLE; This way, they can get an idea of oil stocks and what changes in sentiment might be. To follow the oil literally, that’s where US Oil Fund LP NYSEARCA: USAGE also comes into play. However, for those looking for specific growth potential in the value chain, names such as Occidental Petroleum Co. New York Stock Exchange: OXY And Hess Company. New York Stock Exchange: HES there is something to think about.
What Hedge Funds Noticed in ETF Price Action
US Oil Fund Today
US Oil Fund
(As of 12/26/2024 5:37 PM ET)
- 52 week range
- $65.48
▼
$83.41
- Dividend yield
- 0.00%
- Assets under management
- $1.08 billion
Markets today are as interconnected as ever, and the days of individual price action are long gone. This means that more and more hedge funds not involved in quantum computing or artificial intelligence are focusing on trade correlation modes, connecting the dots with various themes.
This means that, for example, as bond prices fall and bond yields rise, there is now a positive correlation with oil prices to the downside. This shouldn’t be the case, as higher yields typically signal higher inflation expectations, which in theory should be good for oil prices.
Well, these hedge funds aren’t just relying on theory; they bought in practice. According to a Bloomberg report, hedge funds increased their positions in WTI to 161,201 lots, meaning they are starting to acquire net long futures holdings today.
Occidental Petroleum today
Occidental Petroleum
(As of 12/26/2024 5:45 PM ET)
- 52 week range
- $45.17
▼
$71.18
- Dividend yield
- 1.83%
- P/E ratio
- 12.55
- Target price
- $62.10
Even manufacturers like Hess and Occidental are doing this, as evidenced by the Trader Commitment Report. Traders want to buy oil today to protect themselves from a price surge that could eat into their profits if they can’t process and deliver the crude quickly enough.
That’s why Warren Buffett recently bought up to 29% of Occidental shares and why Wall Street analysts have set a consensus price target of $62.1 per share for the company, implying a net upside of 29.2% from today’s price. Moreover, Mizuho employees were ready to stand out from the crowd.
As of December 2024, these analysts valued Occidental Petroleum shares at $70, implying an even greater upside of 45.5% from today’s levels.
More ways to make a profit
Occidental Petroleum is one way to pay for new gains in oil stocks, but it’s not the only way. Last month, Hess persuaded bearish traders to back off shorting the stock a bit, and investors are seeing that trend as the company’s short interest decreased by 9.6%.
Hess today
(As of 12/26/2024 5:30 PM ET)
- 52 week range
- $123.79
▼
$163.98
- Dividend yield
- 1.53%
- P/E ratio
- 15.23
- Target price
- US$170.50
In addition to this sign of bearish capitulation, investors may want to take note of the new December 2024 ratings for Hess stock from Wells Fargo analysts.
Given the company’s current rating, Hess’ stock price is expected to fall closer to $193 per share, which would represent a net upside of as much as 47.8% from today’s share price.
With this in mind, investors should not be surprised to see FFG Partners investors increase their holdings in the US Oil Fund by 2.2% as of December 2024, bringing their net position to a high of 5.3 million today dollars.
SPDR Energy Select Sector Fund Today
Select Energy Sector SPDR Fund
(As of 12/26/2024 5:37 PM ET)
- 52 week range
- $78.98
▼
$98.97
- Dividend yield
- 3.81%
- Assets under management
- $33.19 billion
The same can be said for Hamilton Capital’s 5.7% rise in the broader energy ETF through November 2024, which now has a $297.5 million stake. Overall, these hedge funds and traders made the right decision by accumulating oil positions ahead of a potential bond exit.
This is a thesis that retail investors can embrace today and understand that when the same relationship with bonds changes, it’s probably time to get out and take their profits home.
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