Studies reveal that hedge funds’ ownership of stocks has increased at a high pace over the last decade or so, especially before the outbreak of the financial crisis of 2008. For instance, hedge funds owned approximately 10% of the outstanding common stock of the average company listed on U.S stock exchanges at the end of 2007. Over the course of this year, the Insider Monkey team started tracking the total concentration of companies’ outstanding shares owned by the hedge funds included in our extensive database. Thus, we decided that it would be interesting to have a look at the companies in which hedge funds own a very small concentration of shares. This first part of a two-part feature will lay out a list of five large-cap companies which had the lowest concentration of ownership among the top money managers monitored by our team. It should be noted that this list does not consider foreign corporations trading on U.S exchanges, such as those listed as (ADR) or (USA), simply because hedge funds do not usually invest much in these companies. Thus, let’s proceed with the first five of the most hated large-cap stocks.
Blackstone Group LP (NYSE:BX)
– Concentration of Ownership (as of September 30): 1.10%
– Investors with Long Positions (as of September 30): 34
– Aggregate Value of Investors’ Holdings (as of September 30): $406.12 Million
The institutional investors monitored by Insider Monkey owned a mere 1.10% of fellow institutional investor and financial services giant Blackstone Group LP (NYSE:BX) at the end of the third quarter. The general hedge fund sentiment towards the stock remained unchanged during the turbulent three-month quarter, with 34 smart money investors holding long positions in the company on September 30. Nevertheless, the value of their positions shrank by 12% during the third quarter to $406.12 million. The shares of the global manager of private capital and provider of financial advisory services are 10% in the red year-to-date, mainly due to the sharp pullback of most global equity indexes during the third quarter. The company’s total revenue for the first nine months of 2015 reached $3.7 billion, down from $5.5 billion reported for the same period of last year. This decrease is mainly attributable to a sharp decrease in Performance Fees, which are earned on the performance of Blackstone’s hedge fund structures. Well-known hedge fund Tiger Management, founded by Julian Robertson, holds 1.38 million shares of Blackstone Group LP (NYSE:BX) as of September 30.
BlackRock Inc. (NYSE:BLK)
– Concentration of Ownership (as of September 30): 1.00%
– Investors with Long Positions (as of September 30): 33
– Aggregate Value of Investors’ Holdings (as of September 30): $507.37 Million
A total of 33 hedge funds tracked by Insider Monkey held 1.00% of BlackRock Inc. (NYSE:BLK)’s shares on September 30, which were worth $507.37 million at that time. There were 35 hedge funds invested in BlackRock at the end of the second quarter, owning $443.47 million in shares. The shares of the gigantic investment management firm, which has $4.51 trillion in assets under management as of September 30, have fully recovered from the significant pullback experienced during the third quarter, though they are still 3% in the red year-to-date. The company’s operating income for the third quarter totaled $1.22 billion, which was up by $65 million relative to the third quarter of last year. Its operating margin reached 42.0%, increasing by 140 basis points year-over-year. The increase in operating income was achieved as a result of higher performance fees and organic growth, which was in turn partially offset by negative market performance and the negative impact of foreign exchange rates. Renaissance Technologies upped its stake in BlackRock Inc. (NYSE:BLK) by 50% during the July-to-September quarter to 177,600 shares.
Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions performed actually better than the market. Small-cap stocks, activist targets, and spin-offs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 53 percentage points since the end of August 2012, returning 102% (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.
Dominion Resources Inc. (NYSE:D)
– Concentration of Ownership (as of September 30): 1.00%
– Investors with Long Positions (as of September 30): 24
– Aggregate Value of Investors’ Holdings (as of September 30): $397.46 Million
The number of smart money investors with long positions in Dominion Resources Inc. (NYSE:D) increased to 24 from 22 during the third quarter, though the overall value of these positions shrank to $397.46 million in aggregate from $454.88 million. Dominion Resources is one of the largest producers and transporters of energy in the United States and has seen its shares drop by 15% this year. Dominion’s stock is currently trading at a trailing price-to-earnings ratio of 21.92, which is slightly below the average of 22.71 for the companies included in the S&P 500. On December 10, Argus reiterated its ‘Buy’ rating on the stock but cut its price target on it to $72 from $82, which still represents upside of at least 10%. Adage Capital Management, founded by Phill Gross and Robert Atchinson, reported owning 1.42 million shares of Dominion Resources Inc. (NYSE:D) during the latest round of 13F filings.
Southern Co (NYSE:SO)
– Concentration of Ownership (as of September 30): 0.90%
– Investors with Long Positions (as of September 30): 17
– Aggregate Value of Investors’ Holdings (as of September 30): $360.54 Million
Hedge funds tracked by Insider Monkey owned just 0.90% of Southern Co (NYSE:SO) as of September 30, with 17 funds owning $360.54 million worth of shares. This compares to 19 hedge funds which aggregately held $240.46 million in shares at the end of June. The public electric utility company reported total operating revenue of $13.92 billion for the first nine months of 2015, down from $14.45 billion reported for the same period of 2014. Nevertheless, its diluted earnings per share increased to $2.30 from $1.87 reported for the same nine-month period of 2014. Furthermore, it is hard to overlook the company’s cheap trailing P/E ratio of 17.30, which is well below the ratio for the S&P 500 benchmark. Cliff Asness’ AQR Capital Management is among the largest equity holders of Southern Co (NYSE:SO) within our database, holding 1.28 million shares as of September 30.
Enterprise Products Partners L.P. (NYSE:EPD)
– Concentration of Ownership (as of September 30): 0.40%
– Investors with Long Positions (as of September 30): 21
– Aggregate Value of Investors’ Holdings (as of September 30): $210.07 Million
Enterprise Products Partners L.P. (NYSE:EPD) had the lowest concentration of ownership among the hedge funds monitored by our team from the aforementioned group of five stocks. 21 smart money investors with positions in the company at the end of the third quarter amassed just 0.40% of its shares. Although the number of funds invested in the company was up by one quarter-over-quarter, the value of their investments dropped to $210.07 million from $285.21 million. The provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, petrochemicals and refined products has seen its shares decline by 34% this year. Commodity prices have been at low levels since the fourth quarter of 2014, which is clearly reflected in the company’s top-line figure and financial performance. Enterprise Products Partners generated total revenue of $20.87 billion for the nine-month period that ended September 30, down by $16.89 billion relative to the same period of last year. Charles Davidson’s Wexford Capital added a 936,213-share stake in Enterprise Products Partners L.P. (NYSE:EPD) to its portfolio during the September quarter.