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Hedge Funds Have Never Been More Bullish On Hess Midstream Partners LP (HESM)

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Hess Midstream Partners LP (NYSE:HESM) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of December. 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 Benchmark Electronics, Inc. (NYSE:BHE), Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), and InfraREIT Inc (NYSE:HIFR) to gather more data points.

Why do we pay any attention at all to hedge fund sentiment? 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

We’re going to take a look at the fresh hedge fund action encompassing Hess Midstream Partners LP (NYSE:HESM).

How are hedge funds trading Hess Midstream Partners LP (NYSE:HESM)?

At the end of the fourth quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2018. By comparison, 4 hedge funds held shares or bullish call options in HESM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HESM_may2019

More specifically, Renaissance Technologies was the largest shareholder of Hess Midstream Partners LP (NYSE:HESM), with a stake worth $1.8 million reported as of the end of December. Trailing Renaissance Technologies was BP Capital, which amassed a stake valued at $1.6 million. Arrowstreet Capital, PEAK6 Capital Management, and Lucas Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Levin Capital Strategies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Chiron Investment Management).

Let’s now take a look at hedge fund activity in other stocks similar to Hess Midstream Partners LP (NYSE:HESM). We will take a look at Benchmark Electronics, Inc. (NYSE:BHE), Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), InfraREIT Inc (NYSE:HIFR), and PGT Innovations Inc. (NYSE:PGTI). All of these stocks’ market caps are similar to HESM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BHE 12 105172 -1
RYTM 10 189107 -5
HIFR 15 197476 1
PGTI 20 112859 -2
Average 14.25 151154 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $5 million in HESM’s case. PGT Innovations Inc. (NYSE:PGTI) is the most popular stock in this table. On the other hand Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Hess Midstream Partners LP (NYSE:HESM) is even less popular than RYTM. Hedge funds clearly dropped the ball on HESM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on HESM as the stock returned 36.6% and outperformed the market by an even larger margin.

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

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