We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Plains All American Pipeline, L.P. (NYSE:PAA) and compare it against similarly valued peers like Extra Space Storage, Inc. (NYSE:EXR), Hasbro, Inc. (NASDAQ:HAS), Akamai Technologies, Inc. (NASDAQ:AKAM), and Twilio Inc. (NYSE:TWLO).
Is Plains All American Pipeline, L.P. (NYSE:PAA) the right pick for your portfolio? Prominent investors are taking an optimistic view. The number of bullish hedge fund positions moved up by 4 in recent months. Our calculations also showed that PAA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PAA was in 15 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with PAA 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s take a look at the latest hedge fund action regarding Plains All American Pipeline, L.P. (NYSE:PAA).
What have hedge funds been doing with Plains All American Pipeline, L.P. (NYSE:PAA)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from the second quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in PAA 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.
More specifically, Zimmer Partners was the largest shareholder of Plains All American Pipeline, L.P. (NYSE:PAA), with a stake worth $49.7 million reported as of the end of September. Trailing Zimmer Partners was Magnetar Capital, which amassed a stake valued at $20.8 million. Marshall Wace, MFP Investors, and Arrowstreet Capital 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 BP Capital allocated the biggest weight to Plains All American Pipeline, L.P. (NYSE:PAA), around 4.84% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, earmarking 1.65 percent of its 13F equity portfolio to PAA.
As industrywide interest jumped, key money managers have jumped into Plains All American Pipeline, L.P. (NYSE:PAA) headfirst. Zimmer Partners, managed by Stuart J. Zimmer, established the most outsized position in Plains All American Pipeline, L.P. (NYSE:PAA). Zimmer Partners had $49.7 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $20.8 million investment in the stock during the quarter. The other funds with brand new PAA positions are Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, Richard Chilton’s Chilton Investment Company, and Nick Niell’s Arrowgrass Capital Partners.
Let’s now review hedge fund activity in other stocks similar to Plains All American Pipeline, L.P. (NYSE:PAA). We will take a look at Extra Space Storage, Inc. (NYSE:EXR), Hasbro, Inc. (NASDAQ:HAS), Akamai Technologies, Inc. (NASDAQ:AKAM), and Twilio Inc. (NYSE:TWLO). This group of stocks’ market values resemble PAA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EXR | 27 | 328929 | 7 |
| HAS | 29 | 431855 | 5 |
| AKAM | 27 | 810658 | -6 |
| TWLO | 59 | 2259864 | -4 |
| Average | 35.5 | 957827 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $958 million. That figure was $128 million in PAA’s case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Extra Space Storage, Inc. (NYSE:EXR) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Plains All American Pipeline, L.P. (NYSE:PAA) is even less popular than EXR. Hedge funds dodged a bullet by taking a bearish stance towards PAA. 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 PAA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PAA investors were disappointed as the stock returned -14.5% 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.
