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Hedge Fund Interest in EP Energy Corp (EPE) Is Cooling Off

At Insider Monkey we follow around 730 of the best-performing investors and even though many of them lost money in the last several months, the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.

Is EP Energy Corp (NYSE:EPE) worth your attention right now? Prominent investors are turning less bullish. The number of long hedge fund bets dropped by 2 recently. At the end of this article we will also compare EPE to other stocks including HFF, Inc. (NYSE:HF), United Community Banks Inc (NASDAQ:UCBI), and Global Blood Therapeutics Inc (NASDAQ:GBT) to get a better sense of its popularity.

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In the eyes of most stock holders, hedge funds are viewed as underperforming, outdated financial tools of yesteryear. While there are greater than 8000 funds trading at present, our experts choose to focus on the bigwigs of this club, around 700 funds. Most estimates calculate that this group of people have their hands on the majority of all hedge funds’ total asset base, and by keeping an eye on their top investments, Insider Monkey has unearthed a number of investment strategies that have historically defeated the broader indices. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, let’s analyze the recent action surrounding EP Energy Corp (NYSE:EPE).

What have hedge funds been doing with EP Energy Corp (NYSE:EPE)?

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 10% from the previous quarter. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the largest position in EP Energy Corp (NYSE:EPE). The fund has recently reported a $25.8 million position in the stock, comprising 0.1% of its 13F portfolio. On AQR Capital Management’s heels is Encompass Capital Advisors, managed by Todd J. Kantor, which holds a $16 million stake; 3% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism comprise Vince Maddi and Shawn Brennan’s SIR Capital Management, Ken Griffin’s Citadel Investment Group and Jim Simons’s Renaissance Technologies.

Seeing as EP Energy Corp (NYSE:EPE) has experienced a decline in interest from the smart money, logic holds that there exists a select few hedge funds who were dropping their entire stakes in the third quarter. Interestingly, Steve Cohen’s Point72 Asset Management sold off the largest investment of the “upper crust” of funds followed by Insider Monkey, worth an estimated $5.7 million, and Martin Whitman of Third Avenue Management was right behind this move, as the fund said goodbye to about $4.2 million worth of stock. These moves are important to note, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as EP Energy Corp (NYSE:EPE) but similarly valued. We will take a look at HFF, Inc. (NYSE:HF), United Community Banks Inc (NASDAQ:UCBI), Global Blood Therapeutics Inc (NASDAQ:GBT), and Multi-Color Corporation (NASDAQ:LABL). This group of stocks’ market values match EPE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HF 18 76669 3
UCBI 15 293455 -4
GBT 14 182306 14
LABL 12 45385 2

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. HFF, Inc. (NYSE:HF) is the most popular stock in this table, while Multi-Color Corporation (NASDAQ:LABL) is the laggard, with only 12 bullish hedge fund positions. With 19 elite funds invested, EP Energy Corp (NYSE:EPE) is clearly leading the pack, however the value of their investments is below the average and stands at $96 million. This is not a positive sign and we think it may be a good idea to further analyze the stock before deciding whether to include it in your portfolio or not.

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