Hedge Funds Are Crazy About Magellan Midstream Partners, L.P. (MMP)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Magellan Midstream Partners, L.P. (NYSE:MMP).

Magellan Midstream Partners, L.P. (NYSE:MMP) was in 12 hedge funds’ portfolios at the end of September. MMP has experienced an increase in support from the world’s most elite money managers of late. There were 10 hedge funds in our database with MMP positions at the end of the previous quarter. Our calculations also showed that MMP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most market participants, hedge funds are seen as unimportant, outdated financial tools of years past. While there are over 8000 funds in operation at the moment, We look at the upper echelon of this club, around 750 funds. These money managers handle the lion’s share of the hedge fund industry’s total asset base, and by keeping an eye on their finest picks, Insider Monkey has come up with numerous investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .


Richard Chilton of Chilton Investment Company

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a gander at the recent hedge fund action regarding Magellan Midstream Partners, L.P. (NYSE:MMP).

Hedge fund activity in Magellan Midstream Partners, L.P. (NYSE:MMP)

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in MMP a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Osterweis Capital Management was the largest shareholder of Magellan Midstream Partners, L.P. (NYSE:MMP), with a stake worth $18.2 million reported as of the end of September. Trailing Osterweis Capital Management was Marshall Wace, which amassed a stake valued at $8.1 million. BP Capital, Soros Fund Management, and Citadel Investment Group 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 BP Capital allocated the biggest weight to Magellan Midstream Partners, L.P. (NYSE:MMP), around 5.14% of its 13F portfolio. Lucas Capital Management is also relatively very bullish on the stock, setting aside 3.73 percent of its 13F equity portfolio to MMP.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, created the most valuable position in Magellan Midstream Partners, L.P. (NYSE:MMP). Marshall Wace had $8.1 million invested in the company at the end of the quarter. Renaissance Technologies also made a $4.2 million investment in the stock during the quarter. The other funds with brand new MMP positions are Richard Chilton’s Chilton Investment Company and John Zaro’s Bourgeon Capital.

Let’s go over hedge fund activity in other stocks similar to Magellan Midstream Partners, L.P. (NYSE:MMP). We will take a look at Celanese Corporation (NYSE:CE), ViacomCBS Inc. (NYSE:CBS), POSCO (NYSE:PKX), and Plains All American Pipeline, L.P. (NYSE:PAA). This group of stocks’ market caps resemble MMP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CE 18 944524 -2
CBS 49 1742539 -1
PKX 9 46468 -3
PAA 15 127854 4
Average 22.75 715346 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $715 million. That figure was $56 million in MMP’s case. ViacomCBS Inc. (NYSE:CBS) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 9 bullish hedge fund positions. Magellan Midstream Partners, L.P. (NYSE:MMP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MMP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MMP investors were disappointed as the stock returned -10.3% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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