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Hedge Funds Are Betting On Western Gas Equity Partners LP (WGP)

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets, hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Western Gas Equity Partners LP (NYSE:WGP).

Western Gas Equity Partners LP (NYSE:WGP) shareholders have witnessed an increase in the hedge fund interest of late. 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 Ball Corporation (NYSE:BLL), Markwest Energy Partners LP (NYSE:MWE), and Quintiles Transnational Holdings Inc (NYSE:Q) to gather more data points.

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In the eyes of most traders, hedge funds are viewed as underperforming, old investment tools of years past. While there are greater than 8000 funds with their doors open at the moment, Our researchers look at the upper echelon of this club, around 700 funds. These hedge fund managers preside over the lion’s share of all hedge funds’ total capital, and by keeping an eye on their top investments, Insider Monkey has brought to light various investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

With all of this in mind, we’re going to take a glance at the recent action encompassing Western Gas Equity Partners LP (NYSE:WGP).

How are hedge funds trading Western Gas Equity Partners LP (NYSE:WGP)?

At the end of Q3, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 13% from the second quarter. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Highland Capital Management, managed by James Dondero, holds the largest position in Western Gas Equity Partners LP (NYSE:WGP). Highland Capital Management has a $13.8 million position in the stock, comprising 0.4% of its 13F portfolio. The second largest stake is held by Zimmer Partners, managed by Stuart J. Zimmer, which holds a $10.3 million position; 0.8% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions comprise Renaissance Technologies, Russell Lucas’s Lucas Capital Management, and Dmitry Balyasny’s Balyasny Asset Management.

Now, specific money managers have jumped into Western Gas Equity Partners LP (NYSE:WGP) headfirst. Renaissance Technologies assembled the most outsized position in Western Gas Equity Partners LP (NYSE:WGP). Renaissance Technologies had $9.2 million invested in the company at the end of the quarter. George Hall’s Clinton Group also made a $2.3 million investment in the stock during the quarter. The other funds with brand new WGP positions are Daniel S. Och’s OZ Management and Ken Griffin’s Citadel Investment Group.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Western Gas Equity Partners LP (NYSE:WGP) but similarly valued. We will take a look at Ball Corporation (NYSE:BLL), Markwest Energy Partners LP (NYSE:MWE), Quintiles Transnational Holdings Inc (NYSE:Q), and ArcelorMittal SA (ADR) (NYSE:MT). All of these stocks’ market caps match Western Gas Equity Partners LP (NYSE:WGP)’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BLL 38 1216368 9
MWE 17 412658 4
Q 34 466908 5
MT 18 231752 -4

As you can see, these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $582 million. That figure was $46 million in Western Gas Equity Partners LP (NYSE:WGP)’s case. Ball Corporation (NYSE:BLL) is the most popular stock in this table. On the other hand, Markwest Energy Partners LP (NYSE:MWE) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks, Western Gas Equity Partners LP (NYSE:WGP) is even less popular than Markwest Energy Partners LP (NYSE:MWE). 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.

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