Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Kinder Morgan Inc (NYSE:KMI).
Kinder Morgan Inc (NYSE:KMI) investors should pay attention to an increase in support from the world’s most elite money managers of late. KMI was in 40 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 38 hedge funds in our database with KMI holdings at the end of the previous quarter. Our calculations also showed that KMI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most shareholders, hedge funds are seen as worthless, outdated financial tools of yesteryear. While there are over 8000 funds in operation at present, Our experts hone in on the elite of this club, approximately 850 funds. These money managers shepherd most of all hedge funds’ total asset base, and by observing their highest performing stock picks, Insider Monkey has found a few investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
David Abrams of Abrams Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the recent hedge fund action encompassing Kinder Morgan Inc (NYSE:KMI).
How have hedgies been trading Kinder Morgan Inc (NYSE:KMI)?
Heading into the first quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 48 hedge funds with a bullish position in KMI a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, FPR Partners held the most valuable stake in Kinder Morgan Inc (NYSE:KMI), which was worth $575.8 million at the end of the third quarter. On the second spot was First Pacific Advisors LLC which amassed $305.5 million worth of shares. Abrams Capital Management, D E Shaw, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position FPR Partners allocated the biggest weight to Kinder Morgan Inc (NYSE:KMI), around 11.96% of its 13F portfolio. Claar Advisors is also relatively very bullish on the stock, earmarking 6.34 percent of its 13F equity portfolio to KMI.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the largest position in Kinder Morgan Inc (NYSE:KMI). Adage Capital Management had $13.6 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $1.2 million investment in the stock during the quarter. The following funds were also among the new KMI investors: Clint Carlson’s Carlson Capital, Peter Muller’s PDT Partners, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s also examine hedge fund activity in other stocks similar to Kinder Morgan Inc (NYSE:KMI). We will take a look at Capital One Financial Corp. (NYSE:COF), DuPont de Nemours Inc (NYSE:DD), Kimberly Clark Corporation (NYSE:KMB), and ING Groep N.V. (NYSE:ING). This group of stocks’ market valuations are closest to KMI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COF | 50 | 2041230 | 3 |
| DD | 68 | 2372175 | 16 |
| KMB | 37 | 1058671 | -5 |
| ING | 14 | 635357 | 4 |
| Average | 42.25 | 1526858 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $1527 million. That figure was $1360 million in KMI’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 14 bullish hedge fund positions. Kinder Morgan Inc (NYSE:KMI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately KMI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KMI investors were disappointed as the stock returned -39.2% during the same time period 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
