Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Phillips 66 Partners LP (NYSE:PSXP).
Is Phillips 66 Partners LP (NYSE:PSXP) a good investment today? Hedge funds are buying. The number of bullish hedge fund bets improved by 1 lately. Our calculations also showed that PSXP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PSXP was in 4 hedge funds’ portfolios at the end of the third quarter of 2019. There were 3 hedge funds in our database with PSXP holdings 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a gander at the recent hedge fund action encompassing Phillips 66 Partners LP (NYSE:PSXP).
Hedge fund activity in Phillips 66 Partners LP (NYSE:PSXP)
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PSXP over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, BP Capital holds the number one position in Phillips 66 Partners LP (NYSE:PSXP). BP Capital has a $4.5 million position in the stock, comprising 3.7% of its 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $3.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position BP Capital allocated the biggest weight to Phillips 66 Partners LP (NYSE:PSXP), around 3.7% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to PSXP.
As aggregate interest increased, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most valuable position in Phillips 66 Partners LP (NYSE:PSXP). Arrowstreet Capital had $1.3 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also made a $0.7 million investment in the stock during the quarter.
Let’s check out hedge fund activity in other stocks similar to Phillips 66 Partners LP (NYSE:PSXP). We will take a look at Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Expeditors International of Washington, Inc. (NASDAQ:EXPD), Citrix Systems, Inc. (NASDAQ:CTXS), and Host Hotels & Resorts Inc (NYSE:HST). This group of stocks’ market values match PSXP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KOF | 12 | 488410 | 3 |
| EXPD | 27 | 361013 | 2 |
| CTXS | 27 | 1658692 | -7 |
| HST | 27 | 594453 | -1 |
| Average | 23.25 | 775642 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $776 million. That figure was $10 million in PSXP’s case. Expeditors International of Washington, Inc. (NASDAQ:EXPD) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Phillips 66 Partners LP (NYSE:PSXP) is even less popular than KOF. Hedge funds dodged a bullet by taking a bearish stance towards PSXP. 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 PSXP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PSXP investors were disappointed as the stock returned -0.1% 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.
