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Hedge Funds Are Still Bearish On EQT Midstream Partners LP (EQM)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves.

EQT Midstream Partners LP (NYSE:EQM) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of June. 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 DocuSign, Inc. (NASDAQ:DOCU), Aqua America Inc (NYSE:WTR), and Andeavor Logistics LP (NYSE:ANDX) to gather more data points. Our calculations also showed that EQM isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Stuart Zimmer Zimmer Partners

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the fresh hedge fund action regarding EQT Midstream Partners LP (NYSE:EQM).

What does smart money think about EQT Midstream Partners LP (NYSE:EQM)?

At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in EQM a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

EQM_oct2019

Among these funds, Zimmer Partners held the most valuable stake in EQT Midstream Partners LP (NYSE:EQM), which was worth $42.1 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $7.8 million worth of shares. Moreover, Citadel Investment Group, Soros Fund Management, and Birchview Capital were also bullish on EQT Midstream Partners LP (NYSE:EQM), allocating a large percentage of their portfolios to this stock.

Due to the fact that EQT Midstream Partners LP (NYSE:EQM) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of fund managers who were dropping their full holdings by the end of the second quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $7.3 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dropped about $4 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to EQT Midstream Partners LP (NYSE:EQM). We will take a look at DocuSign, Inc. (NASDAQ:DOCU), Aqua America Inc (NYSE:WTR), Andeavor Logistics LP (NYSE:ANDX), and China Southern Airlines Co Ltd (NYSE:ZNH). All of these stocks’ market caps are similar to EQM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOCU 26 327526 -8
WTR 21 726377 6
ANDX 5 34262 -1
ZNH 1 14307 -2
Average 13.25 275618 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $276 million. That figure was $58 million in EQM’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 1 bullish hedge fund positions. EQT Midstream Partners LP (NYSE:EQM) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EQM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EQM investors were disappointed as the stock returned -24.5% during the third 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 many of these stocks already outperformed the market so far in 2019.

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

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