During the first half of the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by about 4 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Enterprise Products Partners L.P. (NYSE:EPD) and see how the stock is affected by the recent hedge fund activity.
Enterprise Products Partners L.P. (NYSE:EPD) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds’ portfolios at the end of September. 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 Chubb Limited (NYSE:CB), Relx PLC (NYSE:RELX), and General Dynamics Corporation (NYSE:GD) to gather more data points.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
Let’s take a look at the fresh hedge fund action encompassing Enterprise Products Partners L.P. (NYSE:EPD).
What does the smart money think about Enterprise Products Partners L.P. (NYSE:EPD)?
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, no change from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards EPD over the last 13 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Enterprise Products Partners L.P. (NYSE:EPD) was held by Zimmer Partners, which reported holding $112.3 million worth of stock at the end of September. It was followed by Soroban Capital Partners with a $50.3 million position. Other investors bullish on the company included Osterweis Capital Management, Perella Weinberg Partners, and Renaissance Technologies.
Due to the fact that Enterprise Products Partners L.P. (NYSE:EPD) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of money managers that slashed their full holdings by the end of the third quarter. Interestingly, Thomas E. Claugus’s GMT Capital sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, valued at close to $37.7 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also said goodbye to its stock, about $0.6 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Enterprise Products Partners L.P. (NYSE:EPD) but similarly valued. These stocks are Chubb Limited (NYSE:CB), Relx PLC (NYSE:RELX), General Dynamics Corporation (NYSE:GD), and Prudential plc (NYSE:PUK). This group of stocks’ market caps match EPD’s market cap.
|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 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $2.28 billion. That figure was $333 million in EPD’s case. General Dynamics Corporation (NYSE:GD) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 5 bullish hedge fund positions. Enterprise Products Partners L.P. (NYSE:EPD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GD might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.