We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Genesis Energy, L.P. (NYSE:GEL), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Genesis Energy, L.P. (NYSE:GEL) has experienced a decrease in activity from the world’s largest hedge funds in recent months. GEL was in 1 hedge funds’ portfolios at the end of December. There were 2 hedge funds in our database with GEL holdings at the end of the previous quarter. Our calculations also showed that GEL 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).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Wall Street Bull
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 we’re going to take a glance at the fresh hedge fund action surrounding Genesis Energy, L.P. (NYSE:GEL).
What have hedge funds been doing with Genesis Energy, L.P. (NYSE:GEL)?
At the end of the fourth quarter, a total of 1 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -50% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GEL over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arrowstreet Capital held the most valuable stake in Genesis Energy, L.P. (NYSE:GEL), which was worth $17.3 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $1.1 million worth of shares.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified GEL as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks similar to Genesis Energy, L.P. (NYSE:GEL). We will take a look at ABM Industries, Inc. (NYSE:ABM), National General Holdings Corp (NASDAQ:NGHC), Belden Inc. (NYSE:BDC), and Scientific Games Corp (NASDAQ:SGMS). This group of stocks’ market caps resemble GEL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABM | 12 | 62128 | -2 |
| NGHC | 16 | 238246 | -1 |
| BDC | 12 | 64705 | -1 |
| SGMS | 33 | 725702 | 5 |
| Average | 18.25 | 272695 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $17 million in GEL’s case. Scientific Games Corp (NASDAQ:SGMS) is the most popular stock in this table. On the other hand ABM Industries, Inc. (NYSE:ABM) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Genesis Energy, L.P. (NYSE:GEL) is even less popular than ABM. Hedge funds dodged a bullet by taking a bearish stance towards GEL. 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 GEL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GEL investors were disappointed as the stock returned -79.3% 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.
