Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Hedge fund interest in Energy Transfer Partners LP (NYSE:ETP) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Imperial Oil Limited (NYSEAMEX:IMO), Continental Resources, Inc. (NYSE:CLR), and General Mills, Inc. (NYSE:GIS) to gather more data points.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s take a peek at the recent hedge fund action surrounding Energy Transfer Partners LP (NYSE:ETP).
What does the smart money think about Energy Transfer Partners LP (NYSE:ETP)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, no change from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in ETP heading into this year. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the most valuable position in Energy Transfer Partners LP (NYSE:ETP). Zimmer Partners has a $88.5 million position in the stock, comprising 1.2% of its 13F portfolio. On Zimmer Partners’s heels is Appaloosa Management LP, led by David Tepper, holding a $85.2 million position; 1.5% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish encompass Jim Simons’s Renaissance Technologies, and Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners.
Since Energy Transfer Partners LP (NYSE:ETP) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of money managers who sold off their positions entirely last quarter. Intriguingly, Matthew Hulsizer’s PEAK6 Capital Management cut the largest investment of all the hedgies monitored by Insider Monkey, worth an estimated $7.6 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund sold off about $1.5 million worth. These bearish behaviors are interesting, 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 Energy Transfer Partners LP (NYSE:ETP). We will take a look at Imperial Oil Limited (NYSE:IMO), Continental Resources, Inc. (NYSE:CLR), General Mills, Inc. (NYSE:GIS), and Ingersoll-Rand Plc (NYSE:IR). This group of stocks’ market caps match ETP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMO | 17 | 110505 | 2 |
| CLR | 29 | 609433 | -4 |
| GIS | 32 | 289635 | 0 |
| IR | 42 | 2099674 | 9 |
| Average | 30 | 777312 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $777 million. That figure was $368 million in ETP’s case. Ingersoll-Rand Plc (NYSE:IR) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Energy Transfer Partners LP (NYSE:ETP) is even less popular than IMO. 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. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
