While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Enbridge Inc (NYSE:ENB).
Enbridge Inc (NYSE:ENB) investors should pay attention to a decrease in support from the world’s most elite money managers recently. ENB was in 18 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with ENB holdings at the end of the previous quarter. Our calculations also showed that ENB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
Stuart Zimmer of Zimmer Partners
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 review the new hedge fund action encompassing Enbridge Inc (NYSE:ENB).
How have hedgies been trading Enbridge Inc (NYSE:ENB)?
At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ENB over the last 17 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Zimmer Partners held the most valuable stake in Enbridge Inc (NYSE:ENB), which was worth $292.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $124.4 million worth of shares. D E Shaw, Marshall Wace, and Gotham Asset 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 Zimmer Partners allocated the biggest weight to Enbridge Inc (NYSE:ENB), around 3.18% of its 13F portfolio. Grisanti Brown & Partners is also relatively very bullish on the stock, setting aside 1.49 percent of its 13F equity portfolio to ENB.
Due to the fact that Enbridge Inc (NYSE:ENB) has faced declining sentiment from the smart money, logic holds that there exists a select few funds that elected to cut their full holdings heading into Q4. Intriguingly, Rajiv Jain’s GQG Partners said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $79.3 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also cut its stock, about $30 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Enbridge Inc (NYSE:ENB) but similarly valued. These stocks are Morgan Stanley (NYSE:MS), Fiserv, Inc. (NASDAQ:FISV), Celgene Corporation (NASDAQ:CELG), and Automatic Data Processing, Inc. (NASDAQ:ADP). This group of stocks’ market valuations resemble ENB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MS | 61 | 4162955 | 1 |
| FISV | 73 | 3874672 | 25 |
| CELG | 93 | 12535017 | 5 |
| ADP | 49 | 3101422 | 6 |
| Average | 69 | 5918517 | 9.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 69 hedge funds with bullish positions and the average amount invested in these stocks was $5919 million. That figure was $516 million in ENB’s case. Celgene Corporation (NASDAQ:CELG) is the most popular stock in this table. On the other hand Automatic Data Processing, Inc. (NASDAQ:ADP) is the least popular one with only 49 bullish hedge fund positions. Compared to these stocks Enbridge Inc (NYSE:ENB) is even less popular than ADP. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ENB, though not to the same extent, as the stock returned 9.9% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
