At Insider Monkey, we pore over the filings of nearly 750 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 September 30. In this article, we will use that wealth of knowledge to determine whether or not Rattler Midstream LP (NASDAQ:RTLR) makes for a good investment right now.
Rattler Midstream LP (NASDAQ:RTLR) was in 11 hedge funds’ portfolios at the end of September. RTLR investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. There were 20 hedge funds in our database with RTLR holdings at the end of the previous quarter. Our calculations also showed that RTLR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the new hedge fund action regarding Rattler Midstream LP (NASDAQ:RTLR).
What have hedge funds been doing with Rattler Midstream LP (NASDAQ:RTLR)?
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -45% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in RTLR a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Cardinal Capital was the largest shareholder of Rattler Midstream LP (NASDAQ:RTLR), with a stake worth $42.9 million reported as of the end of September. Trailing Cardinal Capital was Zimmer Partners, which amassed a stake valued at $40.5 million. Corvex Capital, Alyeska Investment Group, and Deep Basin Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Corvex Capital allocated the biggest weight to Rattler Midstream LP (NASDAQ:RTLR), around 1.8% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, earmarking 1.42 percent of its 13F equity portfolio to RTLR.
Due to the fact that Rattler Midstream LP (NASDAQ:RTLR) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of money managers that decided to sell off their positions entirely heading into Q4. It’s worth mentioning that Alec Litowitz and Ross Laser’s Magnetar Capital said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, comprising about $10.9 million in stock, and Robert Pohly’s Samlyn Capital was right behind this move, as the fund said goodbye to about $10.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 9 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Rattler Midstream LP (NASDAQ:RTLR) but similarly valued. These stocks are Manchester United PLC (NYSE:MANU), Methanex Corporation (NASDAQ:MEOH), Emergent Biosolutions Inc (NYSE:EBS), and AMN Healthcare Services Inc (NYSE:AMN). This group of stocks’ market caps resemble RTLR’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 13 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $163 million in RTLR’s case. Emergent Biosolutions Inc (NYSE:EBS) is the most popular stock in this table. On the other hand AMN Healthcare Services Inc (NYSE:AMN) is the least popular one with only 7 bullish hedge fund positions. Rattler Midstream LP (NASDAQ:RTLR) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RTLR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RTLR investors were disappointed as the stock returned -8.6% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.