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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether NuStar Energy L.P. (NYSE:NS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
NuStar Energy L.P. (NYSE:NS) was in 7 hedge funds’ portfolios at the end of the fourth quarter of 2019. NS investors should pay attention to an increase in hedge fund sentiment in recent months. There were 3 hedge funds in our database with NS positions at the end of the previous quarter. Our calculations also showed that NS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a 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, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 we’re going to view the new hedge fund action encompassing NuStar Energy L.P. (NYSE:NS).
How have hedgies been trading NuStar Energy L.P. (NYSE:NS)?
At Q4’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 133% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in NS a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the largest position in NuStar Energy L.P. (NYSE:NS), worth close to $16 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Mark Coe of Intrinsic Edge Capital, with a $6.6 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining peers that are bullish encompass Matthew Hulsizer’s PEAK6 Capital Management, Ken Griffin’s Citadel Investment Group and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to NuStar Energy L.P. (NYSE:NS), around 0.82% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, designating 0.23 percent of its 13F equity portfolio to NS.
Now, specific money managers have jumped into NuStar Energy L.P. (NYSE:NS) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in NuStar Energy L.P. (NYSE:NS). Arrowstreet Capital had $16 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also made a $6.6 million investment in the stock during the quarter. The following funds were also among the new NS investors: Renaissance Technologies, Stuart J. Zimmer’s Zimmer Partners, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks similar to NuStar Energy L.P. (NYSE:NS). We will take a look at Acacia Communications, Inc. (NASDAQ:ACIA), Zai Lab Limited (NASDAQ:ZLAB), Sensient Technologies Corporation (NYSE:SXT), and Piedmont Office Realty Trust, Inc. (NYSE:PDM). This group of stocks’ market caps match NS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ACIA | 31 | 644307 | 4 |
| ZLAB | 26 | 350732 | 5 |
| SXT | 20 | 56525 | 3 |
| PDM | 11 | 97488 | 2 |
| Average | 22 | 287263 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $287 million. That figure was $27 million in NS’s case. Acacia Communications, Inc. (NASDAQ:ACIA) is the most popular stock in this table. On the other hand Piedmont Office Realty Trust, Inc. (NYSE:PDM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks NuStar Energy L.P. (NYSE:NS) is even less popular than PDM. Hedge funds dodged a bullet by taking a bearish stance towards NS. 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 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately NS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NS investors were disappointed as the stock returned -66.3% 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 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
