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Hedge Funds Are Dumping Pembina Pipeline Corp (PBA)

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Pembina Pipeline Corp (NYSE:PBA)? The smart money sentiment can provide an answer to this question.

Is Pembina Pipeline Corp (NYSE:PBA) a splendid investment right now? Hedge funds are in a pessimistic mood. The number of long hedge fund positions dropped by 2 in recent months. Our calculations also showed that PBA 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the latest hedge fund action regarding Pembina Pipeline Corp (NYSE:PBA).

How are hedge funds trading Pembina Pipeline Corp (NYSE:PBA)?

Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PBA over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Pembina Pipeline Corp (NYSE:PBA), which was worth $49.3 million at the end of the third quarter. On the second spot was D E Shaw which amassed $21.2 million worth of shares. Two Sigma Advisors, Renaissance Technologies, and Bridgewater Associates 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 Lucas Capital Management allocated the biggest weight to Pembina Pipeline Corp (NYSE:PBA), around 0.62% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to PBA.

Due to the fact that Pembina Pipeline Corp (NYSE:PBA) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few hedge funds that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Perella Weinberg Partners said goodbye to the largest stake of the 750 funds watched by Insider Monkey, comprising an estimated $12.8 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $8.8 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Pembina Pipeline Corp (NYSE:PBA). We will take a look at Fastenal Company (NASDAQ:FAST), ANSYS, Inc. (NASDAQ:ANSS), Church & Dwight Co., Inc. (NYSE:CHD), and Altice USA, Inc. (NYSE:ATUS). This group of stocks’ market valuations match PBA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FAST 28 1046417 -1
ANSS 28 882714 3
CHD 34 543789 4
ATUS 51 3138068 6
Average 35.25 1402747 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $1403 million. That figure was $101 million in PBA’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Fastenal Company (NASDAQ:FAST) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Pembina Pipeline Corp (NYSE:PBA) is even less popular than FAST. Hedge funds dodged a bullet by taking a bearish stance towards PBA. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PBA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PBA investors were disappointed as the stock returned -4.5% during the fourth quarter (through the end of November) 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 so far in Q4.

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

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