Is Kinder Morgan Energy Partners LP (KMP) Going to Burn These Hedge Funds?

Is Kinder Morgan Energy Partners LP (NYSE:KMP) undervalued? Hedge funds are turning less bullish. The number of bullish hedge fund positions stayed the same which is a slightly negative development in our experience

In the eyes of most market participants, hedge funds are assumed to be worthless, old investment vehicles of years past. While there are more than 8000 funds with their doors open today, we choose to focus on the leaders of this group, close to 450 funds. Most estimates calculate that this group has its hands on most of all hedge funds’ total capital, and by monitoring their best stock picks, we have deciphered a number of investment strategies that have historically outstripped the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as integral, bullish insider trading sentiment is another way to parse down the stock market universe. Obviously, there are a variety of incentives for an upper level exec to sell shares of his or her company, but only one, very obvious reason why they would buy. Many empirical studies have demonstrated the valuable potential of this tactic if shareholders understand where to look (learn more here).

Consequently, we’re going to take a gander at the recent action surrounding Kinder Morgan Energy Partners LP (NYSE:KMP).

Hedge fund activity in Kinder Morgan Energy Partners LP (NYSE:KMP)

At the end of the first quarter, a total of 13 of the hedge funds we track were long in this stock, a change of 0% from one quarter earlier. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully.

Of the funds we track, Jim Simons’s Renaissance Technologies had the biggest position in Kinder Morgan Energy Partners LP (NYSE:KMP), worth close to $123.3 million, accounting for 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Richard Driehaus of Driehaus Capital, with a $8.7 million position; 0.4% of its 13F portfolio is allocated to the stock. Some other hedge funds with similar optimism include Matthew Hulsizer’s PEAK6 Capital Management, and Ken Griffin’s Citadel Investment Group.

Judging by the fact that Kinder Morgan Energy Partners LP (NYSE:KMP) has experienced bearish sentiment from hedge fund managers, we can see that there lies a certain “tier” of fund managers who were dropping their entire stakes last quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors dumped the largest stake of the 450+ funds we monitor, valued at about $2 million in stock., and Robert B. Gillam of McKinley Capital Management was right behind this move, as the fund dumped about $1.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with Kinder Morgan Energy Partners LP (NYSE:KMP)?

Insider trading activity, especially when it’s bullish, is best served when the company in focus has experienced transactions within the past half-year. Over the latest six-month time period, Kinder Morgan Energy Partners LP (NYSE:KMP) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Kinder Morgan Energy Partners LP (NYSE:KMP). These stocks are Plains All American Pipeline, L.P. (NYSE:PAA), Spectra Energy Corp. (NYSE:SE), Williams Companies, Inc. (NYSE:WMB), Kinder Morgan Inc (NYSE:KMI), and Enbridge Inc (USA) (NYSE:ENB). All of these stocks are in the oil & gas pipelines industry and their market caps resemble KMP’s market cap.