Here is What Hedge Funds Think About Equitrans Midstream Corporation (ETRN)

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Equitrans Midstream Corporation (NYSE:ETRN) was in 19 hedge funds’ portfolios at the end of the first quarter of 2019. ETRN shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 28 hedge funds in our database with ETRN positions at the end of the previous quarter. Our calculations also showed that etrn isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 2019 (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.

Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital

We’re going to take a gander at the recent hedge fund action regarding Equitrans Midstream Corporation (NYSE:ETRN).

What does the smart money think about Equitrans Midstream Corporation (NYSE:ETRN)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in ETRN a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

No of Hedge Funds with ETRN Positions

Among these funds, Scopia Capital held the most valuable stake in Equitrans Midstream Corporation (NYSE:ETRN), which was worth $181.7 million at the end of the first quarter. On the second spot was Kensico Capital which amassed $165.3 million worth of shares. Moreover, D E Shaw, Canyon Capital Advisors, and Deep Basin Capital were also bullish on Equitrans Midstream Corporation (NYSE:ETRN), allocating a large percentage of their portfolios to this stock.

Since Equitrans Midstream Corporation (NYSE:ETRN) has witnessed declining sentiment from the smart money, we can see that there lies a certain “tier” of money managers who were dropping their full holdings heading into Q3. Interestingly, David Cohen and Harold Levy’s Iridian Asset Management dropped the biggest position of the 700 funds monitored by Insider Monkey, worth an estimated $119.7 million in stock, and Paul Singer’s Elliott Management was right behind this move, as the fund dropped about $44.5 million worth. These moves are interesting, as total hedge fund interest was cut by 9 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Equitrans Midstream Corporation (NYSE:ETRN). We will take a look at WPX Energy Inc (NYSE:WPX), Algonquin Power & Utilities Corp. (NYSE:AQN), Grand Canyon Education Inc (NASDAQ:LOPE), and BlackBerry Limited (NYSE:BB). All of these stocks’ market caps resemble ETRN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPX 42 794081 -4
AQN 12 54770 3
LOPE 26 151266 5
BB 23 667193 0
Average 25.75 416828 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $417 million. That figure was $560 million in ETRN’s case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 12 bullish hedge fund positions. Equitrans Midstream Corporation (NYSE:ETRN) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ETRN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ETRN investors were disappointed as the stock returned -5% 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 13 of these stocks already outperformed the market so far in Q2.

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