Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards BP Midstream Partners LP (NYSE:BPMP).
Hedge fund interest in BP Midstream Partners LP (NYSE:BPMP) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as BRP Inc. (NASDAQ:DOOO), PRA Group, Inc. (NASDAQ:PRAA), and Harmony Gold Mining Company Limited (NYSE:HMY) to gather more data points. Our calculations also showed that BPMP 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.
According to most market participants, hedge funds are seen as worthless, old financial tools of yesteryear. While there are greater than 8000 funds in operation at present, Our researchers choose to focus on the aristocrats of this group, approximately 750 funds. Most estimates calculate that this group of people manage most of the smart money’s total asset base, and by paying attention to their top stock picks, Insider Monkey has unearthed several investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Paul Marshall of Marshall Wace
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. Now let’s analyze the new hedge fund action encompassing BP Midstream Partners LP (NYSE:BPMP).
How have hedgies been trading BP Midstream Partners LP (NYSE:BPMP)?
Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BPMP over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Permian Investment Partners was the largest shareholder of BP Midstream Partners LP (NYSE:BPMP), with a stake worth $15.7 million reported as of the end of September. Trailing Permian Investment Partners was Arrowstreet Capital, which amassed a stake valued at $6 million. Marshall Wace, Citadel Investment Group, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to BP Midstream Partners LP (NYSE:BPMP), around 3.41% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to BPMP.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Vertex One Asset Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as BP Midstream Partners LP (NYSE:BPMP) but similarly valued. These stocks are BRP Inc. (NASDAQ:DOOO), PRA Group, Inc. (NASDAQ:PRAA), Harmony Gold Mining Company Limited (NYSE:HMY), and Eagle Bancorp, Inc. (NASDAQ:EGBN). This group of stocks’ market values are similar to BPMP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DOOO | 10 | 67996 | 0 |
| PRAA | 10 | 34235 | 2 |
| HMY | 10 | 88514 | 0 |
| EGBN | 15 | 38861 | 4 |
| Average | 11.25 | 57402 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $25 million in BPMP’s case. Eagle Bancorp, Inc. (NASDAQ:EGBN) is the most popular stock in this table. On the other hand BRP Inc. (NASDAQ:DOOO) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks BP Midstream Partners LP (NYSE:BPMP) is even less popular than DOOO. Hedge funds dodged a bullet by taking a bearish stance towards BPMP. 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 BPMP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BPMP investors were disappointed as the stock returned 2.3% 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.
