NGL Energy Partners LP (NGL): Hedge Funds In Wait-and-See Mode

In this article you are going to find out whether hedge funds think NGL Energy Partners LP (NYSE:NGL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

NGL Energy Partners LP (NYSE:NGL) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of March. At the end of this article we will also compare NGL to other stocks including Select Energy Services, Inc. (NYSE:WTTR), KNOT Offshore Partners LP (NYSE:KNOP), and Hanmi Financial Corp (NASDAQ:HAFC) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by 44 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 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.

Bill Miller of Miller Value Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a gander at the fresh hedge fund action encompassing NGL Energy Partners LP (NYSE:NGL).

What does smart money think about NGL Energy Partners LP (NYSE:NGL)?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NGL over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in NGL Energy Partners LP (NYSE:NGL). Arrowstreet Capital has a $1.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Miller Value Partners, led by Bill Miller, holding a $1.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other peers that are bullish comprise Ken Griffin’s Citadel Investment Group, and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Miller Value Partners allocated the biggest weight to NGL Energy Partners LP (NYSE:NGL), around 0.09% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to NGL.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Highland Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Brasada Capital Management).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as NGL Energy Partners LP (NYSE:NGL) but similarly valued. We will take a look at Select Energy Services, Inc. (NYSE:WTTR), KNOT Offshore Partners LP (NYSE:KNOP), Hanmi Financial Corp (NASDAQ:HAFC), and Quanex Building Products Corporation (NYSE:NX). All of these stocks’ market caps are closest to NGL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $3 million in NGL’s case. Select Energy Services, Inc. (NYSE:WTTR) is the most popular stock in this table. On the other hand KNOT Offshore Partners LP (NYSE:KNOP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks NGL Energy Partners LP (NYSE:NGL) is even less popular than KNOP. Hedge funds clearly dropped the ball on NGL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on NGL as the stock returned 103.2% so far in the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.