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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 ONEOK, Inc. (NYSE:OKE).
Is ONEOK, Inc. (NYSE:OKE) worth your attention right now? Prominent investors are in a bullish mood. The number of bullish hedge fund positions rose by 5 in recent months. Our calculations also showed that OKE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a glance at the recent hedge fund action regarding ONEOK, Inc. (NYSE:OKE).
What have hedge funds been doing with ONEOK, Inc. (NYSE:OKE)?
Heading into the first quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in OKE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ONEOK, Inc. (NYSE:OKE) was held by Zimmer Partners, which reported holding $56.8 million worth of stock at the end of September. It was followed by AQR Capital Management with a $25 million position. Other investors bullish on the company included Carlson Capital, Adage Capital Management, and GAMCO Investors. In terms of the portfolio weights assigned to each position BP Capital allocated the biggest weight to ONEOK, Inc. (NYSE:OKE), around 5.57% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, earmarking 5.55 percent of its 13F equity portfolio to OKE.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the largest position in ONEOK, Inc. (NYSE:OKE). Adage Capital Management had $19.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $7.7 million position during the quarter. The other funds with new positions in the stock are Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, Qing Li’s Sciencast Management, and Richard Driehaus’s Driehaus Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as ONEOK, Inc. (NYSE:OKE) but similarly valued. We will take a look at Zimmer Biomet Holdings Inc (NYSE:ZBH), The Hershey Company (NYSE:HSY), Yum! Brands, Inc. (NYSE:YUM), and Paychex, Inc. (NASDAQ:PAYX). This group of stocks’ market values are similar to OKE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZBH | 64 | 1443573 | 15 |
| HSY | 39 | 901147 | 3 |
| YUM | 36 | 462690 | -3 |
| PAYX | 36 | 713174 | 4 |
| Average | 43.75 | 880146 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.75 hedge funds with bullish positions and the average amount invested in these stocks was $880 million. That figure was $224 million in OKE’s case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Yum! Brands, Inc. (NYSE:YUM) is the least popular one with only 36 bullish hedge fund positions. Compared to these stocks ONEOK, Inc. (NYSE:OKE) is even less popular than YUM. Hedge funds dodged a bullet by taking a bearish stance towards OKE. 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 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately OKE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); OKE investors were disappointed as the stock returned -51.9% 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 Q1.
Disclosure: None. This article was originally published at Insider Monkey.
