Hedge Funds Mistimed Their Tallgrass Energy, LP (TGE) Bets

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Tallgrass Energy, LP (NYSE:TGE).

Tallgrass Energy, LP (NYSE:TGE) has experienced an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that TGE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

If you’d ask most investors, hedge funds are assumed to be slow, outdated investment vehicles of years past. While there are more than 8000 funds with their doors open today, Our experts hone in on the upper echelon of this club, about 850 funds. These money managers orchestrate the lion’s share of the hedge fund industry’s total asset base, and by observing their best stock picks, Insider Monkey has revealed a few investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Zilvinas Zach Mecelis Covalis Capital

Zilvinas Mecelis of Covalis Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the new hedge fund action encompassing Tallgrass Energy, LP (NYSE:TGE).

How are hedge funds trading Tallgrass Energy, LP (NYSE:TGE)?

At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TGE over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Tallgrass Energy, LP (NYSE:TGE) was held by Alpine Associates, which reported holding $74.8 million worth of stock at the end of September. It was followed by Covalis Capital with a $70.4 million position. Other investors bullish on the company included Citadel Investment Group, Glazer Capital, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Covalis Capital allocated the biggest weight to Tallgrass Energy, LP (NYSE:TGE), around 27.88% of its 13F portfolio. Havens Advisors is also relatively very bullish on the stock, designating 3.8 percent of its 13F equity portfolio to TGE.

Now, key money managers have jumped into Tallgrass Energy, LP (NYSE:TGE) headfirst. Glazer Capital, managed by Paul Glazer, initiated the largest position in Tallgrass Energy, LP (NYSE:TGE). Glazer Capital had $21.6 million invested in the company at the end of the quarter. Tom Sandell’s Sandell Asset Management also made a $18.8 million investment in the stock during the quarter. The other funds with new positions in the stock are David Alexander Witkin’s Beryl Capital Management, Mario Gabelli’s GAMCO Investors, and Israel Englander’s Millennium Management.

Let’s now review hedge fund activity in other stocks similar to Tallgrass Energy, LP (NYSE:TGE). These stocks are Polaris Inc. (NYSE:PII), Ingredion Inc (NYSE:INGR), EQM Midstream Partners, LP (NYSE:EQM), and Park Hotels & Resorts Inc. (NYSE:PK). This group of stocks’ market valuations are closest to TGE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PII 26 353558 -3
INGR 23 304077 -6
EQM 11 40191 -1
PK 13 353031 -8
Average 18.25 262714 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $377 million in TGE’s case. Polaris Inc. (NYSE:PII) is the most popular stock in this table. On the other hand EQM Midstream Partners, LP (NYSE:EQM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Tallgrass Energy, LP (NYSE:TGE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately TGE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TGE were disappointed as the stock returned -42.3% during the first two and a half months of 2020 (through March 16th) 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 most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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