Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Crestwood Equity Partners LP (NYSE:CEQP) was in 6 hedge funds’ portfolios at the end of September. CEQP shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. There were 4 hedge funds in our database with CEQP holdings at the end of the previous quarter. Our calculations also showed that CEQP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s review the latest hedge fund action regarding Crestwood Equity Partners LP (NYSE:CEQP).
Hedge fund activity in Crestwood Equity Partners LP (NYSE:CEQP)
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the second quarter of 2019. On the other hand, there were a total of 4 hedge funds with a bullish position in CEQP a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Matthew Hulsizer’s PEAK6 Capital Management has the biggest call position in Crestwood Equity Partners LP (NYSE:CEQP), worth close to $3.5 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Intrinsic Edge Capital, led by Mark Coe, holding a $2.8 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass James Dondero’s Highland Capital Management, Ken Griffin’s Citadel Investment Group and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to Crestwood Equity Partners LP (NYSE:CEQP), around 0.31% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, designating 0.15 percent of its 13F equity portfolio to CEQP.
As aggregate interest increased, key hedge funds were breaking ground themselves. Intrinsic Edge Capital, managed by Mark Coe, established the most outsized position in Crestwood Equity Partners LP (NYSE:CEQP). Intrinsic Edge Capital had $2.8 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $0.6 million position during the quarter. The other funds with brand new CEQP positions are Renaissance Technologies and Richard Chilton’s Chilton Investment Company.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Crestwood Equity Partners LP (NYSE:CEQP) but similarly valued. These stocks are First Interstate Bancsystem Inc (NASDAQ:FIBK), Cabot Corporation (NYSE:CBT), Barnes Group Inc. (NYSE:B), and Dorman Products Inc. (NASDAQ:DORM). This group of stocks’ market valuations resemble CEQP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FIBK | 9 | 62050 | -2 |
| CBT | 18 | 120961 | 1 |
| B | 13 | 24632 | -2 |
| DORM | 13 | 48985 | -1 |
| Average | 13.25 | 64157 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $7 million in CEQP’s case. Cabot Corporation (NYSE:CBT) is the most popular stock in this table. On the other hand First Interstate Bancsystem Inc (NASDAQ:FIBK) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Crestwood Equity Partners LP (NYSE:CEQP) is even less popular than FIBK. Hedge funds dodged a bullet by taking a bearish stance towards CEQP. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CEQP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CEQP investors were disappointed as the stock returned -11.6% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
