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Hedge Funds Aren’t Crazy About Plains GP Holdings LP (PAGP) Anymore

Is Plains GP Holdings LP (NYSE:PAGP) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from industry insiders. They sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.

Plains GP Holdings LP (NYSE:PAGP) was in 23 hedge funds’ portfolios at the end of September. PAGP shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 24 hedge funds in our database with PAGP holdings at the end of the previous quarter. Our calculations also showed that PAGP isn’t among the 30 most popular stocks among hedge funds.

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’ 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

RENAISSANCE TECHNOLOGIES

We’re going to check out the recent hedge fund action surrounding Plains GP Holdings LP (NYSE:PAGP).

Hedge fund activity in Plains GP Holdings LP (NYSE:PAGP)

Heading into the fourth quarter of 2018, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards PAGP over the last 13 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.

PAGP_dec2018

The largest stake in Plains GP Holdings LP (NYSE:PAGP) was held by Point State Capital, which reported holding $87.3 million worth of stock at the end of September. It was followed by Canyon Capital Advisors with a $76.8 million position. Other investors bullish on the company included Renaissance Technologies, Perella Weinberg Partners, and Scopia Capital.

Since Plains GP Holdings LP (NYSE:PAGP) has faced bearish sentiment from the smart money, it’s easy to see that there is a sect of hedge funds that elected to cut their entire stakes heading into Q3. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management cut the largest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $16.7 million in stock. Paul Reeder and Edward Shapiro’s fund, PAR Capital Management, also cut its stock, about $8.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Plains GP Holdings LP (NYSE:PAGP) but similarly valued. These stocks are BGC Partners, Inc. (NASDAQ:BGCP), Cabot Corporation (NYSE:CBT), RLJ Lodging Trust (NYSE:RLJ), and ALLETE Inc (NYSE:ALE). This group of stocks’ market caps are closest to PAGP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BGCP 27 477154 3
CBT 24 201702 -3
RLJ 20 330217 2
ALE 17 178339 2
Average 22 296853 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $297 million. That figure was $408 million in PAGP’s case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand ALLETE Inc (NYSE:ALE) is the least popular one with only 17 bullish hedge fund positions. Plains GP Holdings LP (NYSE:PAGP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BGCP might be a better candidate to consider a long position.

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

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