Hedge Funds Are Souring On Enterprise Products Partners L.P. (EPD)

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 Enterprise Products Partners L.P. (NYSE:EPD).

Enterprise Products Partners L.P. (NYSE:EPD) was in 25 hedge funds’ portfolios at the end of September. The all time high for this statistic is 30. EPD investors should pay attention to a decrease in hedge fund interest in recent months. There were 28 hedge funds in our database with EPD positions at the end of the second quarter. Our calculations also showed that EPD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a gander at the fresh hedge fund action regarding Enterprise Products Partners L.P. (NYSE:EPD).

Bruce Berkowitz of Fairholme (FAIRX)

Do Hedge Funds Think EPD Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2021, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in EPD a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in Enterprise Products Partners L.P. (NYSE:EPD) was held by Appaloosa Management LP, which reported holding $42.5 million worth of stock at the end of September. It was followed by Zimmer Partners with a $36 million position. Other investors bullish on the company included Fairholme (FAIRX), Citadel Investment Group, and Kamunting Street Capital. 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 12.98% of its 13F portfolio. Kamunting Street Capital is also relatively very bullish on the stock, earmarking 12.94 percent of its 13F equity portfolio to EPD.

Due to the fact that Enterprise Products Partners L.P. (NYSE:EPD) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedge funds that elected to cut their full holdings heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest position of all the hedgies tracked by Insider Monkey, totaling close to $10.7 million in stock. Dan Kozlowski’s fund, Plaisance Capital, also dropped its stock, about $5.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Enterprise Products Partners L.P. (NYSE:EPD). We will take a look at American International Group Inc (NYSE:AIG), Exelon Corporation (NASDAQ:EXC), TC Energy Corporation (NYSE:TRP), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), Roper Technologies Inc. (NYSE:ROP), Monster Beverage Corp (NASDAQ:MNST), and EOG Resources Inc (NYSE:EOG). This group of stocks’ market valuations are closest to EPD’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1520 million. That figure was $233 million in EPD’s case. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is the most popular stock in this table. On the other hand TC Energy Corporation (NYSE:TRP) is the least popular one with only 15 bullish hedge fund positions. Enterprise Products Partners L.P. (NYSE:EPD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EPD is 39.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately EPD wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); EPD investors were disappointed as the stock returned -0.7% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.