Here Is What Hedge Funds Think About Plains All American Pipeline, L.P. (PAA)

The market has been volatile due to elections and the potential of another Federal Reserve rate increase. Small cap stocks have been on a tear, as the Russell 2000 ETF (IWM) has outperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of June. SEC filings and hedge fund investor letters indicate that the smart money seems to be getting back in stocks, and the funds’ movements is one of the reasons why small-cap stocks are red hot. In this article, we analyze what the smart money thinks of Plains All American Pipeline, L.P. (NYSE:PAA) and find out how it is affected by hedge funds’ moves.

Is Plains All American Pipeline, L.P. (NYSE:PAA) the right pick for your portfolio? Hedge funds seem to be selling. The number of bullish hedge fund bets that are revealed through the 13F filings decreased by two last quarter. In this way, there were 17 hedge funds in our database with PAA positions at the end of September. At the end of this article we will also compare PAA to other stocks including Franco-Nevada Corporation (NYSE:FNV), Cincinnati Financial Corporation (NASDAQ:CINF), and Regions Financial Corporation (NYSE:RF) to get a better sense of its popularity.

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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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Now, let’s take a look at the latest action surrounding Plains All American Pipeline, L.P. (NYSE:PAA).

What does the smart money think about Plains All American Pipeline, L.P. (NYSE:PAA)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on Plains All American Pipeline, down by 11% over the quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in PAA at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PAA Chart

Of the funds tracked by Insider Monkey, Balyasny Asset Management, led by Dmitry Balyasny, holds the most valuable position in Plains All American Pipeline, L.P. (NYSE:PAA). Balyasny Asset Management has a $21.9 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund is Matthew Hulsizer’s PEAK6 Capital Management, which holds a $15.4 million call position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish encompass Michael Price’s MFP Investors, Millennium Management, one of the 10 largest hedge funds in the world, and Russell Hawkins’ Hawkins Capital. We should note that MFP Investors is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually dropped their positions entirely. At the top of the heap, Till Bechtolsheimer’s Arosa Capital Management dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $24.7 million in call options, and First Eagle Investment Management was right behind this move, as the fund sold off about $23.5 million worth of shares.

Let’s now review hedge fund activity in other stocks similar to Plains All American Pipeline, L.P. (NYSE:PAA). We will take a look at Franco-Nevada Corporation (NYSE:FNV), Cincinnati Financial Corporation (NASDAQ:CINF), Regions Financial Corporation (NYSE:RF), and Church & Dwight Co., Inc. (NYSE:CHD). This group of stocks’ market values match PAA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FNV 15 418087 0
CINF 18 120933 1
RF 34 823572 -5
CHD 18 269513 -2

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $408 million. That figure was just $94 million in PAA’s case. Regions Financial Corporation (NYSE:RF) is by far the most popular stock in this table. On the other hand Franco-Nevada Corporation (NYSE:FNV) is the least popular one with only 15 bullish hedge fund positions. Plains All American Pipeline, L.P. (NYSE:PAA) 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. In this regard Regions Financial Corporation (NYSE:RF) might be a better candidate to consider taking a long position in.

Disclosure: none