Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in NGL Energy Partners LP (NYSE:NGL)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in NGL Energy Partners LP (NYSE:NGL) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NGL to other stocks including Minerals Technologies Inc (NYSE:MTX), Eagle Bancorp, Inc. (NASDAQ:EGBN), and Dycom Industries, Inc. (NYSE:DY) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the latest hedge fund action regarding NGL Energy Partners LP (NYSE:NGL).
What does smart money think about NGL Energy Partners LP (NYSE:NGL)?
Heading into the third quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. By comparison, 6 hedge funds held shares or bullish call options in NGL a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in NGL Energy Partners LP (NYSE:NGL). Arrowstreet Capital has a $27.6 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Matthew Hulsizer of PEAK6 Capital Management, with a $7.2 million call position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism consist of Bill Miller’s Miller Value Partners, Ken Griffin’s Citadel Investment Group and James Dondero’s Highland Capital Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Miller Value Partners).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NGL Energy Partners LP (NYSE:NGL) but similarly valued. We will take a look at Minerals Technologies Inc (NYSE:MTX), Eagle Bancorp, Inc. (NASDAQ:EGBN), Dycom Industries, Inc. (NYSE:DY), and Allakos Inc. (NASDAQ:ALLK). All of these stocks’ market caps match NGL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTX | 15 | 110784 | 1 |
| EGBN | 11 | 47787 | 0 |
| DY | 17 | 67705 | 0 |
| ALLK | 8 | 176357 | -1 |
| Average | 12.75 | 100658 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $40 million in NGL’s case. Dycom Industries, Inc. (NYSE:DY) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks NGL Energy Partners LP (NYSE:NGL) is even less popular than ALLK. Hedge funds dodged a bullet by taking a bearish stance towards NGL. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NGL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NGL investors were disappointed as the stock returned -3.2% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
