Here’s What Hedge Funds Think About MPLX LP (MPLX)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards MPLX LP (NYSE:MPLX).

Is MPLX LP (NYSE:MPLX) the right investment to pursue these days? Investors who are in the know are getting less optimistic. The number of bullish hedge fund bets dropped by 1 in recent months. Our calculations also showed that mplx isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James Dondero Highland Capital Management

James Dondero of Highland Capital Management

Let’s analyze the fresh hedge fund action surrounding MPLX LP (NYSE:MPLX).

How are hedge funds trading MPLX LP (NYSE:MPLX)?

Heading into the second quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in MPLX a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

No of Hedge Funds with MPLX Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Stockbridge Partners, managed by Sharlyn C. Heslam, holds the most valuable position in MPLX LP (NYSE:MPLX). Stockbridge Partners has a $229.8 million position in the stock, comprising 8.5% of its 13F portfolio. On Stockbridge Partners’s heels is Zimmer Partners, managed by Stuart J. Zimmer, which holds a $125.9 million position; 1.5% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism contain James Dondero’s Highland Capital Management, David M. Knott’s Dorset Management and Kelly Hampaul’s Everett Capital Advisors.

Because MPLX LP (NYSE:MPLX) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers who were dropping their full holdings heading into Q3. At the top of the heap, Daniel Arbess’s Perella Weinberg Partners sold off the largest investment of all the hedgies monitored by Insider Monkey, worth close to $7.4 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund sold off about $5.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to MPLX LP (NYSE:MPLX). These stocks are Corning Incorporated (NYSE:GLW), NXP Semiconductors NV (NASDAQ:NXPI), Republic Services, Inc. (NYSE:RSG), and Pioneer Natural Resources Company (NYSE:PXD). This group of stocks’ market valuations match MPLX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLW 37 622563 7
NXPI 52 3358284 -20
RSG 30 595673 0
PXD 55 1686677 -7
Average 43.5 1565799 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.5 hedge funds with bullish positions and the average amount invested in these stocks was $1566 million. That figure was $399 million in MPLX’s case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Republic Services, Inc. (NYSE:RSG) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks MPLX LP (NYSE:MPLX) is even less popular than RSG. Hedge funds dodged a bullet by taking a bearish stance towards MPLX. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately MPLX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MPLX investors were disappointed as the stock returned -2.3% during the same time frame 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 the second quarter.

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