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 Pembina Pipeline Corp (NYSE:PBA)? The smart money sentiment can provide an answer to this question.
Pembina Pipeline Corp (NYSE:PBA) was in 15 hedge funds’ portfolios at the end of the first quarter of 2019. PBA shareholders have witnessed an increase in support from the world’s most elite money managers lately. There were 14 hedge funds in our database with PBA positions at the end of the previous quarter. Our calculations also showed that PBA isn’t among the 30 most popular stocks among hedge funds.
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 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.
We’re going to review the fresh hedge fund action encompassing Pembina Pipeline Corp (NYSE:PBA).
How have hedgies been trading Pembina Pipeline Corp (NYSE:PBA)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in PBA a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Ken Griffin’s Citadel Investment Group has the biggest position in Pembina Pipeline Corp (NYSE:PBA), worth close to $46.8 million, amounting to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Jim Simons of Renaissance Technologies, with a $14.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism include D. E. Shaw’s D E Shaw, Ray Dalio’s Bridgewater Associates and Noam Gottesman’s GLG Partners.
Now, key money managers were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, assembled the largest position in Pembina Pipeline Corp (NYSE:PBA). Renaissance Technologies had $14.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $3.1 million position during the quarter. The following funds were also among the new PBA investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Jeffrey Talpins’s Element Capital Management.
Let’s now review hedge fund activity in other stocks similar to Pembina Pipeline Corp (NYSE:PBA). These stocks are Splunk Inc (NASDAQ:SPLK), Freeport-McMoRan Inc. (NYSE:FCX), Cerner Corporation (NASDAQ:CERN), and International Paper Company (NYSE:IP). All of these stocks’ market caps are closest to PBA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPLK | 29 | 317583 | 4 |
| FCX | 42 | 1413867 | -1 |
| CERN | 29 | 828412 | 7 |
| IP | 29 | 250823 | -5 |
| Average | 32.25 | 702671 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $703 million. That figure was $103 million in PBA’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Splunk Inc (NASDAQ:SPLK) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Pembina Pipeline Corp (NYSE:PBA) is even less popular than SPLK. Hedge funds dodged a bullet by taking a bearish stance towards PBA. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately PBA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PBA investors were disappointed as the stock returned 1.4% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
