EnLink Midstream LLC (ENLC): Hedge Funds Turning Bearish

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. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about EnLink Midstream LLC (NYSE:ENLC)?

EnLink Midstream LLC (NYSE:ENLC) shareholders have witnessed a decrease in enthusiasm from smart money lately. Our calculations also showed that ENLC 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).

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the new hedge fund action regarding EnLink Midstream LLC (NYSE:ENLC).

What have hedge funds been doing with EnLink Midstream LLC (NYSE:ENLC)?

At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -36% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in ENLC a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in EnLink Midstream LLC (NYSE:ENLC), which was worth $6.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $3.8 million worth of shares. Luminus Management, Arrowstreet Capital, and Two Sigma Advisors 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 Luminus Management allocated the biggest weight to EnLink Midstream LLC (NYSE:ENLC), around 0.23% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.0037 percent of its 13F equity portfolio to ENLC.

Judging by the fact that EnLink Midstream LLC (NYSE:ENLC) has faced falling interest from the smart money, logic holds that there was a specific group of funds that elected to cut their entire stakes last quarter. At the top of the heap, Brandon Haley’s Holocene Advisors said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, totaling about $1.4 million in stock, and James Dondero’s Highland Capital Management was right behind this move, as the fund dumped about $0.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to EnLink Midstream LLC (NYSE:ENLC). We will take a look at Orthofix Medical Inc (NASDAQ:OFIX), ACM Research, Inc. (NASDAQ:ACMR), Banco BBVA Argentina S.A. (NYSE:BBAR), and Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD). This group of stocks’ market values are closest to ENLC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OFIX 17 77612 1
ACMR 10 43651 0
BBAR 8 4407 -1
GLDD 20 78403 -5
Average 13.75 51018 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $14 million in ENLC’s case. Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) is the most popular stock in this table. On the other hand Banco BBVA Argentina S.A. (NYSE:BBAR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks EnLink Midstream LLC (NYSE:ENLC) is even less popular than BBAR. Hedge funds clearly dropped the ball on ENLC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on ENLC as the stock returned 206.2% so far in the second quarter and outperformed the market by an even larger margin.

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