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Did Hedge Funds Make The Right Call On Energy Transfer L.P. (ET)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Energy Transfer L.P. (NYSE:ET) and determine whether the smart money was really smart about this stock.

Is Energy Transfer L.P. (NYSE:ET) a bargain? The smart money was taking a bearish view. The number of long hedge fund positions decreased by 3 in recent months. Our calculations also showed that ET isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ET was in 33 hedge funds’ portfolios at the end of March. There were 36 hedge funds in our database with ET positions at the end of the previous quarter.

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

In the eyes of most investors, hedge funds are perceived as worthless, outdated financial tools of yesteryear. While there are over 8000 funds trading at present, Our researchers hone in on the masters of this group, around 850 funds. It is estimated that this group of investors orchestrate the lion’s share of the smart money’s total asset base, and by paying attention to their top picks, Insider Monkey has unsheathed various investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Tepper Appaloosa Management

David Tepper of Appaloosa Management LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to take a peek at the new hedge fund action surrounding Energy Transfer L.P. (NYSE:ET).

How have hedgies been trading Energy Transfer L.P. (NYSE:ET)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the fourth quarter of 2019. By comparison, 28 hedge funds held shares or bullish call options in ET a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Appaloosa Management LP was the largest shareholder of Energy Transfer L.P. (NYSE:ET), with a stake worth $74.9 million reported as of the end of September. Trailing Appaloosa Management LP was Abrams Capital Management, which amassed a stake valued at $62.2 million. Baupost Group, Arrowstreet Capital, and Moore Global Investments 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 Heronetta Management allocated the biggest weight to Energy Transfer L.P. (NYSE:ET), around 7.81% of its 13F portfolio. Kamunting Street Capital is also relatively very bullish on the stock, dishing out 3.58 percent of its 13F equity portfolio to ET.

Since Energy Transfer L.P. (NYSE:ET) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that decided to sell off their positions entirely heading into Q4. Interestingly, Matthew Knauer and Mina Faltas’s Nokota Management cut the biggest position of all the hedgies followed by Insider Monkey, totaling close to $29.6 million in stock, and Daniel Lascano’s Lomas Capital Management was right behind this move, as the fund dumped about $18.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Energy Transfer L.P. (NYSE:ET). We will take a look at Wheaton Precious Metals Corp. (NYSE:WPM), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), MPLX LP (NYSE:MPLX), and Laboratory Corp. of America Holdings (NYSE:LH). All of these stocks’ market caps are similar to ET’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPM 25 545094 -5
ALNY 34 840647 1
MPLX 11 179942 -4
LH 45 1054505 -8
Average 28.75 655047 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $655 million. That figure was $422 million in ET’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 11 bullish hedge fund positions. Energy Transfer L.P. (NYSE:ET) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on ET as the stock returned 60.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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