Hedge Funds Are Selling Energy Transfer L.P. (ET)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Energy Transfer L.P. (NYSE:ET) based on that data.

Energy Transfer L.P. (NYSE:ET) investors should be aware of a decrease in support from the world’s most elite money managers recently. ET was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. There were 36 hedge funds in our database with ET positions at the end of the previous quarter. Our calculations also showed that ET 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 51 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.

David Abrams

David Abrams of Abrams Capital 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 trades like this one. 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 let’s check out the recent hedge fund action regarding Energy Transfer L.P. (NYSE:ET).

What have hedge funds been doing with Energy Transfer L.P. (NYSE:ET)?

Heading into the second quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ET over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Appaloosa Management LP held the most valuable stake in Energy Transfer L.P. (NYSE:ET), which was worth $74.9 million at the end of the third quarter. On the second spot was Abrams Capital Management which amassed $62.2 million worth of shares. Baupost Group, Arrowstreet Capital, and Moore Global Investments 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 Heronetta Management allocated the biggest weight to Energy Transfer L.P. (NYSE:ET), around 7.81% of its 13F portfolio. Kamunting Street Capital is also relatively very bullish on the stock, earmarking 3.58 percent of its 13F equity portfolio to ET.

Judging by the fact that Energy Transfer L.P. (NYSE:ET) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies who sold off their entire stakes in the third quarter. Intriguingly, Matthew Knauer and Mina Faltas’s Nokota Management dropped the biggest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $29.6 million in stock. Daniel Lascano’s fund, Lomas Capital Management, also dumped its stock, about $18.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 3 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Energy Transfer L.P. (NYSE:ET). We will take a look at Wheaton Precious Metals Corp. (NYSE:WPM), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), MPLX LP (NYSE:MPLX), and Laboratory Corp. of America Holdings (NYSE:LH). This group of stocks’ market valuations are closest to ET’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPM 25 545094 -5
ALNY 34 840647 1
MPLX 11 179942 -4
LH 45 1054505 -8
Average 28.75 655047 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $655 million. That figure was $422 million in ET’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 11 bullish hedge fund positions. Energy Transfer L.P. (NYSE:ET) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on ET as the stock returned 84.2% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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