Were the Bulls Wrong About Teekay LNG Partners L.P. (TGP)?

The worries about the economic slowdown in China and the ongoing uncertainty about the path of interest-rate increases triggered several waves of equity sell-offs during the third quarter. Of course, most hedge funds and other asset managers had to stomach substantial losses during the bloody three-month period, which might have caused some to consider fleeing the U.S. equity markets. Interestingly, smaller-cap stocks registered higher losses than large-capitalization stocks during the September quarter, suggesting that institutional investors heavily discarded seemingly riskier equities amid high uncertainty and turmoil. In fact, the Russell 2000 Index lost 11.9% in the third quarter, while the Standard and Poor’s 500 benchmark declined a mere 6.4%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Teekay LNG Partners L.P. (NYSE:TGP).

Is Teekay LNG Partners L.P. (NYSE:TGP) a good investment right now? Investors who are in the know are turning more bullish. Among the investors that we track, the aggregate value of their holdings in TGP more than doubled during the third quarter, despite a drop of about 25% in the stock, so they were buying up a lot of cheap shares, although they still owned less than 1% of the company’s outstanding shares by the end of September. Overall, the number of long hedge fund bets improved by 1 in the third quarter, to 7. At the end of this article we will also compare TGP to other stocks including InterXion Holding NV (NYSE:INXN), Pegasystems Inc. (NASDAQ:PEGA), and Bitauto Hldg Ltd (ADR) (NYSE:BITA) to get a better sense of its popularity.

To most shareholders, hedge funds are viewed as underperforming, outdated investment vehicles of years past. While there are more than an 8,000 funds in operation today, our experts choose to focus on the bigwigs of this group, around 700 funds. These money managers orchestrate most of the smart money’s total capital, and by following their best equity investments, Insider Monkey has unsheathed a number of investment strategies that have historically beaten the broader indices. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, we’re going to review the new action encompassing Teekay LNG Partners L.P. (NYSE:TGP).

What does the smart money think about Teekay LNG Partners L.P. (NYSE:TGP)?

Heading into Q4, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 17% bump from one quarter earlier. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or had already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Millennium Management, managed by Israel Englander, holds the number one position in Teekay LNG Partners L.P. (NYSE:TGP). Millennium Management has a $5.7 million position in the stock, comprising less than 0.1% of its 13F portfolio. The second-largest stake is held by Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $2.7 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism include Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Matthew Hulsizer’s PEAK6 Capital Management.

With general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Renaissance Technologies initiated the most valuable position in Teekay LNG Partners L.P. (NYSE:TGP). Renaissance Technologies had $2.3 million invested in the company at the end of the quarter. Arrowstreet Capital also made a $1.3 million investment in the stock during the quarter.

Let’s also examine hedge fund activity in other stocks similar to Teekay LNG Partners L.P. (NYSE:TGP). These stocks are InterXion Holding NV (NYSE:INXN), Pegasystems Inc. (NASDAQ:PEGA), Bitauto Hldg Ltd (ADR) (NYSE:BITA), and Darling International Inc. (NYSE:DAR). All of these stocks’ market caps are similar to TGP’s market cap.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was just $14 million in TGP’s case. InterXion Holding NV (NYSE:INXN) is the most popular stock in this table. On the other hand Bitauto Hldg Ltd (ADR) (NYSE:BITA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Teekay LNG Partners L.P. (NYSE:TGP) is even less popular than BITA. 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, despite a small uptick in bullish investors during Q3.