We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Enterprise Products Partners L.P. (NYSE:EPD).
Enterprise Products Partners L.P. (NYSE:EPD) was in 28 hedge funds’ portfolios at the end of December. EPD investors should pay attention to an increase in support from the world’s most elite money managers of late. There were 24 hedge funds in our database with EPD positions at the end of the previous quarter. Our calculations also showed that EPD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the recent hedge fund action regarding Enterprise Products Partners L.P. (NYSE:EPD).
What does smart money think about Enterprise Products Partners L.P. (NYSE:EPD)?
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EPD over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Enterprise Products Partners L.P. (NYSE:EPD) was held by Zimmer Partners, which reported holding $127.9 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $42.1 million position. Other investors bullish on the company included Schonfeld Strategic Advisors, Osterweis Capital Management, and Heronetta Management. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to Enterprise Products Partners L.P. (NYSE:EPD), around 15.33% of its 13F portfolio. BP Capital is also relatively very bullish on the stock, designating 10.01 percent of its 13F equity portfolio to EPD.
Consequently, key money managers have jumped into Enterprise Products Partners L.P. (NYSE:EPD) headfirst. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), created the largest position in Enterprise Products Partners L.P. (NYSE:EPD). Schonfeld Strategic Advisors had $33.8 million invested in the company at the end of the quarter. Ken Fisher’s Fisher Asset Management also initiated a $16.5 million position during the quarter. The following funds were also among the new EPD investors: Alec Litowitz and Ross Laser’s Magnetar Capital, Stephen J. Errico’s Locust Wood Capital Advisers, and Richard Driehaus’s Driehaus Capital.
Let’s go over hedge fund activity in other stocks similar to Enterprise Products Partners L.P. (NYSE:EPD). We will take a look at Raytheon Company (NYSE:RTN), The Charles Schwab Corporation (NYSE:SCHW), Brookfield Asset Management Inc. (NYSE:BAM), and Micron Technology, Inc. (NASDAQ:MU). All of these stocks’ market caps are closest to EPD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RTN | 53 | 3458796 | -1 |
| SCHW | 70 | 4021282 | 11 |
| BAM | 34 | 1282206 | 2 |
| MU | 89 | 4565616 | 17 |
| Average | 61.5 | 3331975 | 7.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 61.5 hedge funds with bullish positions and the average amount invested in these stocks was $3332 million. That figure was $340 million in EPD’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand Brookfield Asset Management Inc. (NYSE:BAM) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks Enterprise Products Partners L.P. (NYSE:EPD) is even less popular than BAM. Hedge funds dodged a bullet by taking a bearish stance towards EPD. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately EPD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EPD investors were disappointed as the stock returned -37.9% during the same time period 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 most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
