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Oil service was the energy sector in the doghouse among hedge funds
In a trading pattern that was seen across most of the major hedge fund managers, the large-cap oil service stocks were dumped in the fourth quarter, while managers continued to bulk up on their favorite independent exploration and production companies.
Occidental Petroelum(OXY) was among the top 10 increased positions for Steven Cohen's SAC Capital, while large-cap oil service company
Baker Hughes(BHI) was its biggest sale.
Halliburton(HAL - Get Report) and
Schlumberger(SLB) were among the top 10 sales of quant driven hedge fund Renaissance Technologies in the fourth quarter.
The selling in oil service stocks is not surprising as the sector has been battered by the shift in the North American market away from the natural gas basins and to the liquids shale plays. While the shale business is booming, the North American market pricing power that had been held by many oil service companies has begun eroding. Halliburton said in its recent earnings that margins will fall, but won't collapse as some investors seem to be predicting.
The hedge funds sold at the right time, as stocks like Halliburton remain in the doghouse this year -- even as many independent E&Ps tilted to shale oil exploration have rallied, resurgence from fourth-quarter lows in oil service stocks has been modest. The lack of support for oil service shares continues to suggest there is
longer-term value to be exploited
for the patient investor.