Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards DCP Midstream LP (NYSE:DCP).
DCP Midstream LP (NYSE:DCP) investors should pay attention to an increase in support from the world’s most elite money managers recently. DCP was in 6 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 4 hedge funds in our database with DCP positions at the end of the previous quarter. Our calculations also showed that DCP 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).
According to most stock holders, hedge funds are seen as slow, outdated financial vehicles of years past. While there are greater than 8000 funds trading today, We hone in on the elite of this group, approximately 850 funds. It is estimated that this group of investors have their hands on the lion’s share of all hedge funds’ total asset base, and by shadowing their unrivaled investments, Insider Monkey has revealed a number of investment strategies that have historically outstripped the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Richard Driehaus of Driehaus Capital
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 let’s take a look at the fresh hedge fund action encompassing DCP Midstream LP (NYSE:DCP).
What does smart money think about DCP Midstream LP (NYSE:DCP)?
Heading into the first quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in DCP over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in DCP Midstream LP (NYSE:DCP). Arrowstreet Capital has a $11.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Henry Breck of Heronetta Management, with a $3.7 million position; 2.4% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions contain Ken Griffin’s Citadel Investment Group, and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to DCP Midstream LP (NYSE:DCP), around 2.4% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to DCP.
As one would reasonably expect, key money managers were leading the bulls’ herd. Driehaus Capital, managed by Richard Driehaus, assembled the most valuable position in DCP Midstream LP (NYSE:DCP). Driehaus Capital had $0.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $0.5 million position during the quarter. The only other fund with a new position in the stock is Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to DCP Midstream LP (NYSE:DCP). These stocks are RealPage, Inc. (NASDAQ:RP), Manhattan Associates, Inc. (NASDAQ:MANH), World Wrestling Entertainment, Inc. (NYSE:WWE), and Eastgroup Properties Inc (NYSE:EGP). This group of stocks’ market valuations resemble DCP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RP | 36 | 603605 | 0 |
| MANH | 24 | 455484 | -1 |
| WWE | 30 | 599403 | -7 |
| EGP | 10 | 64618 | -2 |
| Average | 25 | 430778 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $431 million. That figure was $18 million in DCP’s case. RealPage, Inc. (NASDAQ:RP) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks DCP Midstream LP (NYSE:DCP) is even less popular than EGP. Hedge funds dodged a bullet by taking a bearish stance towards DCP. 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 DCP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DCP investors were disappointed as the stock returned -78.9% 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 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.
