We are still in an overall bull market and many stocks that smart money investors were piling into 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. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Energy Transfer L.P. (NYSE:ET).
Is Energy Transfer L.P. (NYSE:ET) ready to rally soon? The best stock pickers are buying. The number of bullish hedge fund positions improved by 1 lately. Our calculations also showed that ET 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.
Leon Cooperman of Omega Advisors
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the fresh hedge fund action regarding Energy Transfer L.P. (NYSE:ET).
Hedge fund activity in Energy Transfer L.P. (NYSE:ET)
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in ET a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Zimmer Partners was the largest shareholder of Energy Transfer L.P. (NYSE:ET), with a stake worth $145.4 million reported as of the end of September. Trailing Zimmer Partners was Appaloosa Management, which amassed a stake valued at $76.6 million. Magnetar Capital, Omega Advisors, and Wexford Capital 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 Whetstone Capital Advisors allocated the biggest weight to Energy Transfer L.P. (NYSE:ET), around 10.86% of its portfolio. BP Capital is also relatively very bullish on the stock, setting aside 9.41 percent of its 13F equity portfolio to ET.
As aggregate interest increased, key money managers have been driving this bullishness. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the largest position in Energy Transfer L.P. (NYSE:ET). Marshall Wace had $13.6 million invested in the company at the end of the quarter. Richard Chilton’s Chilton Investment Company also made a $1.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Michael Price’s MFP Investors, and John Orrico’s Water Island Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Energy Transfer L.P. (NYSE:ET). We will take a look at The Kraft Heinz Company (NASDAQ:KHC), NetEase, Inc (NASDAQ:NTES), Xcel Energy Inc (NASDAQ:XEL), and Thomson Reuters Corporation (NYSE:TRI). This group of stocks’ market caps resemble ET’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KHC | 36 | 9572927 | 2 |
| NTES | 30 | 3513002 | -4 |
| XEL | 17 | 573407 | -1 |
| TRI | 19 | 360770 | 2 |
| Average | 25.5 | 3505027 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $3505 million. That figure was $623 million in ET’s case. The Kraft Heinz Company (NASDAQ:KHC) is the most popular stock in this table. On the other hand Xcel Energy Inc (NASDAQ:XEL) is the least popular one with only 17 bullish hedge fund positions. Energy Transfer L.P. (NYSE:ET) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ET wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ET were disappointed as the stock returned -7.5% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
