Hedge Funds Were Dumping Antero Midstream Corp (AM) Before The Coronavirus

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 (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Antero Midstream Corp (NYSE:AM) makes for a good investment right now.

Antero Midstream Corp (NYSE:AM) was in 14 hedge funds’ portfolios at the end of December. AM has experienced a decrease in support from the world’s most elite money managers in recent months. There were 16 hedge funds in our database with AM positions at the end of the previous quarter. Our calculations also showed that AM 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).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Andrew Raab FPR Partners Andy Raab

Andrew Raab of FPR Partners

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 analyze the key hedge fund action surrounding Antero Midstream Corp (NYSE:AM).

Hedge fund activity in Antero Midstream Corp (NYSE:AM)

At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AM over the last 18 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Bob Peck and Andy Raab’s FPR Partners has the most valuable position in Antero Midstream Corp (NYSE:AM), worth close to $82.1 million, corresponding to 1.7% of its total 13F portfolio. The second most bullish fund manager is Pennant Capital Management, led by Alan Fournier, holding a $17.1 million position; 6.1% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism consist of Glenn Greenberg’s Brave Warrior Capital, Ken Griffin’s Citadel Investment Group and Mitch Cantor’s Mountain Lake Investment Management. In terms of the portfolio weights assigned to each position Mountain Lake Investment Management allocated the biggest weight to Antero Midstream Corp (NYSE:AM), around 6.59% of its 13F portfolio. Pennant Capital Management is also relatively very bullish on the stock, designating 6.11 percent of its 13F equity portfolio to AM.

Since Antero Midstream Corp (NYSE:AM) has witnessed bearish sentiment from hedge fund managers, logic holds that there exists a select few funds that decided to sell off their positions entirely in the third quarter. Interestingly, Jonathan Kolatch’s Redwood Capital Management said goodbye to the largest position of the 750 funds followed by Insider Monkey, worth an estimated $5.9 million in stock, and Mark Coe’s Intrinsic Edge Capital was right behind this move, as the fund cut about $4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Antero Midstream Corp (NYSE:AM). We will take a look at OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), Community Bank System, Inc. (NYSE:CBU), Ingevity Corporation (NYSE:NGVT), and Envestnet Inc (NYSE:ENV). This group of stocks’ market valuations resemble AM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OCFT 9 14809 9
CBU 10 18225 -5
NGVT 27 158927 1
ENV 18 86201 3
Average 16 69541 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $144 million in AM’s case. Ingevity Corporation (NYSE:NGVT) is the most popular stock in this table. On the other hand OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) is the least popular one with only 9 bullish hedge fund positions. Antero Midstream Corp (NYSE:AM) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately AM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AM investors were disappointed as the stock returned -68.7% during the same time period 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.