Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Plains GP Holdings LP (NYSE:PAGP) to find out whether there were any major changes in hedge funds’ views.
Is PAGP a good stock to buy now? Money managers were getting less optimistic. The number of bullish hedge fund bets decreased by 1 in recent months. Plains GP Holdings LP (NYSE:PAGP) was in 18 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 27. Our calculations also showed that PAGP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s view the new hedge fund action encompassing Plains GP Holdings LP (NYSE:PAGP).
Do Hedge Funds Think PAGP Is A Good Stock To Buy Now?
At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards PAGP over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Plains GP Holdings LP (NYSE:PAGP) was held by D E Shaw, which reported holding $23.1 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $18.3 million position. Other investors bullish on the company included Deep Basin Capital, Renaissance Technologies, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Plains GP Holdings LP (NYSE:PAGP), around 1.57% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, earmarking 1.51 percent of its 13F equity portfolio to PAGP.
Seeing as Plains GP Holdings LP (NYSE:PAGP) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedge funds who were dropping their positions entirely by the end of the third quarter. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group cut the largest position of the 750 funds monitored by Insider Monkey, worth about $12.8 million in stock, and Matt Smith’s Deep Basin Capital was right behind this move, as the fund cut about $3 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Plains GP Holdings LP (NYSE:PAGP) but similarly valued. These stocks are Domo Inc. (NASDAQ:DOMO), Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), U.S. Physical Therapy, Inc. (NYSE:USPH), Tennant Company (NYSE:TNC), Stoke Therapeutics, Inc. (NASDAQ:STOK), Arcus Biosciences, Inc. (NYSE:RCUS), and Athenex, Inc. (NASDAQ:ATNX). All of these stocks’ market caps resemble PAGP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DOMO | 24 | 252079 | 3 |
| ARQT | 9 | 526942 | -1 |
| USPH | 10 | 38330 | 1 |
| TNC | 15 | 77755 | 5 |
| STOK | 9 | 170786 | -2 |
| RCUS | 26 | 221219 | -2 |
| ATNX | 25 | 359589 | 7 |
| Average | 16.9 | 235243 | 1.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.9 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $75 million in PAGP’s case. Arcus Biosciences, Inc. (NYSE:RCUS) is the most popular stock in this table. On the other hand Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) is the least popular one with only 9 bullish hedge fund positions. Plains GP Holdings LP (NYSE:PAGP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PAGP is 50.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on PAGP as the stock returned 50% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
