Online Charity Fundraising | Hedge Funds Buy Oil Stocks and Energy Sector Stocks

Hedge Funds Buy Oil Stocks and Energy Sector Stocks

Posted on August 19, 2010
Filed Under ETF Exchange Traded Funds, Investing and Speculating | Leave a Comment

There is a large component of trading that is based solely on emotions, and good traders can spot it and profit off of it.  There are some traders whose investment strategy exclusively relies on news frenzy and emotional trading by investor community.


The best example of this most recently is the energy sector.  It was reported that some of the biggest hedge fund managers on Wall Street invested heavily in the energy sector in the last quarter.  We have this information because hedge funds are requires by securities regulators to disclose their equity trades at least 45 days after the end of the previous quarter.  This report found that many of them invested in energy stocks while many investors were fleeing the market.

One of the main things that had investors fleeing for the bond hills is the BP oil spill in the Gulf of Mexico. This disaster started speculation on whether BP would recover from this, or how much of their business would go down because of all this wasted oil.

Well, it turned out that BP has tons of other oil wells that they are getting inventory from and was probably barely missing what was coming out of the Gulf.  Their biggest concern wasn’t loss of oil.  It was the loss of public relations.

Although the oil lost in the Gulf of Mexico was minuscule, that is all the public saw.  In addition to that, the new media, also known as the roomer mill, started to speculate like crazy on whether this would bankrupt BP.  That was nonsense, but the nonsense again sent investors out of their holdings in BP stocks.

BP has now recovered and all of the hedge funds that invested during the scare are now raking in the large profits.  They saw the emotional trading typhoon coming and positioned themselves for it.  Many even invested in oil stocks that had nothing to do with the oil spill knowing that the entire sector was going to tank temporarily.

Things like natural gas etfs weren’t really affected.  (ETF is the abbreviation for Exchange Traded Funds.) But most other energy sectors got huge buys from the hedge funds last quarter.

Comments

Leave a Reply