Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Sunoco Logistics Partners L.P. (NYSE:SXL).
Is Sunoco Logistics Partners L.P. (NYSE:SXL) a buy right now? Investors who are in the know are categorically reducing their bets on the stock. The number of bullish hedge fund positions that are disclosed in regulatory 13F filings slashed by 1 recently. There were 10 hedge funds in our database with SXL positions at the end of the third quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Alliant Energy Corporation (NYSE:LNT), Lear Corporation (NYSE:LEA), and Total System Services, Inc. (NYSE:TSS) to gather more data points.
Follow Energy Transfer Operating L.p. (NYSE:ETP)
Follow Energy Transfer Operating L.p. (NYSE:ETP)
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
crystal51/Shutterstock.com
Hedge fund activity in Sunoco Logistics Partners L.P. (NYSE:SXL)
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SXL over the last 5 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Stuart J. Zimmer’s Zimmer Partners has the largest position in Sunoco Logistics Partners L.P. (NYSE:SXL), worth close to $50.7 million, accounting for 1.4% of its total 13F portfolio. The second largest stake is held by Wexford Capital, led by Charles Davidson, holding a $21.6 million position; 3.5% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism consist of Millennium Management, one of the 10 largest hedge funds in the world, Jim Simons’ Renaissance Technologies and T Boone Pickens’s BP Capital. We should note that two of these hedge funds (Zimmer Partners and BP Capital) are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
