Hedge Funds Are Warming Up To Kinder Morgan Inc (KMI)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about Kinder Morgan Inc (NYSE:KMI)?

Kinder Morgan Inc (NYSE:KMI) has seen an increase in hedge fund interest of late. Our calculations also showed that KMI 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. Also, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. 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. Now let’s take a peek at the key hedge fund action regarding Kinder Morgan Inc (NYSE:KMI).

How have hedgies been trading Kinder Morgan Inc (NYSE:KMI)?

At the end of the first quarter, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KMI over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, FPR Partners held the most valuable stake in Kinder Morgan Inc (NYSE:KMI), which was worth $226.8 million at the end of the third quarter. On the second spot was First Pacific Advisors LLC which amassed $213.3 million worth of shares. Abrams Capital Management, Encompass Capital Advisors, 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 FPR Partners allocated the biggest weight to Kinder Morgan Inc (NYSE:KMI), around 9.32% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, setting aside 7.47 percent of its 13F equity portfolio to KMI.

As industrywide interest jumped, specific money managers have been driving this bullishness. Encompass Capital Advisors, managed by Todd J. Kantor, assembled the biggest position in Kinder Morgan Inc (NYSE:KMI). Encompass Capital Advisors had $69.6 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $24.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Anand Parekh’s Alyeska Investment Group, Steve Cohen’s Point72 Asset Management, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Kinder Morgan Inc (NYSE:KMI). We will take a look at TAL Education Group, Inc. (NYSE:TAL), Ross Stores, Inc. (NASDAQ:ROST), HCA Healthcare Inc (NYSE:HCA), and SBA Communications Corporation (NASDAQ:SBAC). This group of stocks’ market valuations are similar to KMI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $1698 million. That figure was $947 million in KMI’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand TAL Education Group, Inc. (NYSE:TAL) is the least popular one with only 38 bullish hedge fund positions. Kinder Morgan Inc (NYSE:KMI) 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 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately KMI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); KMI investors were disappointed as the stock returned 12.6% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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