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.
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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.
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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.
Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that dumped their entire stakes in the stock during the third quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dumped the biggest investment of all the hedgies followed by Insider Monkey, valued at close to $7.3 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $3.2 million worth of shares.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sunoco Logistics Partners L.P. (NYSE:SXL) but similarly valued. We will take a look at Alliant Energy Corporation (NYSE:LNT), Lear Corporation (NYSE:LEA), Total System Services, Inc. (NYSE:TSS), and Newfield Exploration Co. (NYSE:NFX). This group of stocks’ market values are similar to SXL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LNT | 15 | 72746 | -1 |
| LEA | 32 | 708590 | -3 |
| TSS | 32 | 430356 | 0 |
| NFX | 45 | 738096 | 0 |
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $487 million. That figure was $124 million in SXL’s case. Newfield Exploration Co. (NYSE:NFX) is the most popular stock in this table. On the other hand Alliant Energy Corporation (NYSE:LNT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Sunoco Logistics Partners L.P. (NYSE:SXL) is even less popular than LNT. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
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