Did Hedge Funds Drop The Ball On DCP Midstream LP (DCP) ?

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not DCP Midstream LP (NYSE:DCP) makes for a good investment right now.

DCP Midstream LP (NYSE:DCP) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds’ portfolios at the end of December. At the end of this article we will also compare DCP to other stocks including Sea Limited (NYSE:SE), AU Optronics Corp. (NYSE:AUO), and MGIC Investment Corporation (NYSE:MTG) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin

Let’s go over the fresh hedge fund action regarding DCP Midstream LP (NYSE:DCP).

What have hedge funds been doing with DCP Midstream LP (NYSE:DCP)?

At the end of the fourth quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in DCP over the last 14 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).


According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Daniel Arbess’s Perella Weinberg Partners has the biggest position in DCP Midstream LP (NYSE:DCP), worth close to $9 million, corresponding to 0.6% of its total 13F portfolio. On Perella Weinberg Partners’s heels is Renaissance Technologies, managed by Jim Simons, which holds a $8.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Ken Griffin’s Citadel Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Matthew Hulsizer’s PEAK6 Capital Management.

Due to the fact that DCP Midstream LP (NYSE:DCP) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of fund managers who sold off their positions entirely heading into Q3. At the top of the heap, Israel Englander’s Millennium Management dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $1.1 million in stock. George Hall’s fund, Clinton Group, also dumped its stock, about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to DCP Midstream LP (NYSE:DCP). These stocks are Sea Limited (NYSE:SE), AU Optronics Corp. (NYSE:AUO), MGIC Investment Corporation (NYSE:MTG), and Southwest Gas Holdings, Inc. (NYSE:SWX). This group of stocks’ market valuations are closest to DCP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SE 14 335436 -4
AUO 9 58301 -1
MTG 35 358474 5
SWX 17 225927 4
Average 18.75 244535 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $245 million. That figure was $18 million in DCP’s case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand AU Optronics Corp. (NYSE:AUO) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks DCP Midstream LP (NYSE:DCP) is even less popular than AUO. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on DCP, though not to the same extent, as the stock returned 24.1% and outperformed the market as well.

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