It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 Western Midstream Partners, LP (NYSE:WES).
Is Western Midstream Partners, LP (NYSE:WES) worth your attention right now? The best stock pickers are getting more bullish. The number of bullish hedge fund positions advanced by 1 lately. Our calculations also showed that WES isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). WES was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with WES positions at the end of the previous quarter.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
James Dondero of Highland Capital Management
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the recent hedge fund action encompassing Western Midstream Partners, LP (NYSE:WES).
How are hedge funds trading Western Midstream Partners, LP (NYSE:WES)?
Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in WES over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Zimmer Partners was the largest shareholder of Western Midstream Partners, LP (NYSE:WES), with a stake worth $74.6 million reported as of the end of September. Trailing Zimmer Partners was Sand Grove Capital Partners, which amassed a stake valued at $14.3 million. Highland Capital Management, Arrowstreet Capital, and Soros Fund Management 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 Sand Grove Capital Partners allocated the biggest weight to Western Midstream Partners, LP (NYSE:WES), around 2.68% of its 13F portfolio. Lucas Capital Management is also relatively very bullish on the stock, dishing out 2.06 percent of its 13F equity portfolio to WES.
As one would reasonably expect, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Western Midstream Partners, LP (NYSE:WES). Arrowstreet Capital had $2.6 million invested in the company at the end of the quarter. BP Capital also made a $0.9 million investment in the stock during the quarter. The only other fund with a brand new WES position is Richard Chilton’s Chilton Investment Company.
Let’s go over hedge fund activity in other stocks similar to Western Midstream Partners, LP (NYSE:WES). We will take a look at Textron Inc. (NYSE:TXT), Jack Henry & Associates, Inc. (NASDAQ:JKHY), Tiffany & Co. (NYSE:TIF), and Zebra Technologies Corporation (NASDAQ:ZBRA). All of these stocks’ market caps resemble WES’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TXT | 23 | 658405 | 0 |
| JKHY | 18 | 181183 | 0 |
| TIF | 30 | 1500513 | 8 |
| ZBRA | 18 | 427751 | -2 |
| Average | 22.25 | 691963 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $692 million. That figure was $108 million in WES’s case. Tiffany & Co. (NYSE:TIF) is the most popular stock in this table. On the other hand Jack Henry & Associates, Inc. (NASDAQ:JKHY) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Western Midstream Partners, LP (NYSE:WES) is even less popular than JKHY. Hedge funds dodged a bullet by taking a bearish stance towards WES. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WES wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WES investors were disappointed as the stock returned -26.7% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
