We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards ONEOK, Inc. (NYSE:OKE) and determine whether hedge funds skillfully traded this stock.
ONEOK, Inc. (NYSE:OKE) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that OKE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare OKE to other stocks including Pembina Pipeline Corp (NYSE:PBA), Fifth Third Bancorp (NASDAQ:FITB), and Ventas, Inc. (NYSE:VTR) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 56 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a glance at the key hedge fund action surrounding ONEOK, Inc. (NYSE:OKE).
How have hedgies been trading ONEOK, Inc. (NYSE:OKE)?
At Q2’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in OKE a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Israel Englander’s Millennium Management has the largest position in ONEOK, Inc. (NYSE:OKE), worth close to $41.1 million, corresponding to 0.1% of its total 13F portfolio. The second most bullish fund manager is Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $15.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of Ken Griffin’s Citadel Investment Group, and Donald Sussman’s Paloma Partners. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to ONEOK, Inc. (NYSE:OKE), around 3.93% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, earmarking 1.58 percent of its 13F equity portfolio to OKE.
Due to the fact that ONEOK, Inc. (NYSE:OKE) has faced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of funds that elected to cut their entire stakes in the second quarter. Intriguingly, D. E. Shaw’s D E Shaw dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at about $7.9 million in stock. James Morrow’s fund, Callodine Capital Management, also dumped its stock, about $2.2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to ONEOK, Inc. (NYSE:OKE). These stocks are Pembina Pipeline Corp (NYSE:PBA), Fifth Third Bancorp (NASDAQ:FITB), Ventas, Inc. (NYSE:VTR), Zebra Technologies Corporation (NASDAQ:ZBRA), Teva Pharmaceutical Industries Limited (NYSE:TEVA), Nomura Holdings, Inc. (NYSE:NMR), and Evergy, Inc. (NYSE:EVRG). This group of stocks’ market values resemble OKE’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $552 million. That figure was $117 million in OKE’s case. Evergy, Inc. (NYSE:EVRG) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. ONEOK, Inc. (NYSE:OKE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OKE is 57.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately OKE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OKE investors were disappointed as the stock returned -22.2% since Q2 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.