We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Shell Midstream Partners LP (NYSE:SHLX) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Shell Midstream Partners LP (NYSE:SHLX) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that SHLX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 we’re going to go over the fresh hedge fund action encompassing Shell Midstream Partners LP (NYSE:SHLX).
What have hedge funds been doing with Shell Midstream Partners LP (NYSE:SHLX)?
At the end of the fourth quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SHLX over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Shell Midstream Partners LP (NYSE:SHLX), with a stake worth $31.2 million reported as of the end of September. Trailing Arrowstreet Capital was BP Capital, which amassed a stake valued at $4 million. Renaissance Technologies, Lucas Capital Management, and Citadel Investment Group 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 BP Capital allocated the biggest weight to Shell Midstream Partners LP (NYSE:SHLX), around 3.94% of its 13F portfolio. Lucas Capital Management is also relatively very bullish on the stock, setting aside 0.85 percent of its 13F equity portfolio to SHLX.
As one would reasonably expect, key hedge funds were breaking ground themselves. Renaissance Technologies, founded by Jim Simons, assembled the most valuable position in Shell Midstream Partners LP (NYSE:SHLX). Renaissance Technologies had $1 million invested in the company at the end of the quarter. Mario Gabelli’s GAMCO Investors also made a $0.4 million investment in the stock during the quarter. The only other fund with a new position in the stock is Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Shell Midstream Partners LP (NYSE:SHLX) but similarly valued. These stocks are Tempur Sealy International Inc. (NYSE:TPX), Envista Holdings Corporation (NYSE:NVST), Tetra Tech, Inc. (NASDAQ:TTEK), and Mattel, Inc. (NASDAQ:MAT). All of these stocks’ market caps resemble SHLX’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $841 million. That figure was $38 million in SHLX’s case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand Mattel, Inc. (NASDAQ:MAT) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Shell Midstream Partners LP (NYSE:SHLX) is even less popular than MAT. Hedge funds dodged a bullet by taking a bearish stance towards SHLX. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately SHLX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SHLX investors were disappointed as the stock returned -49.7% 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 so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.