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Hess Midstream LP (HESM): Hedge Funds Rushing To The Exits

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Hess Midstream LP (NYSE:HESM).

Hess Midstream LP (NYSE:HESM) was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. HESM investors should be aware of a decrease in enthusiasm from smart money recently. There were 9 hedge funds in our database with HESM positions at the end of the previous quarter. Our calculations also showed that HESM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the latest hedge fund action encompassing Hess Midstream LP (NYSE:HESM).

What have hedge funds been doing with Hess Midstream LP (NYSE:HESM)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -44% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HESM over the last 18 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

The largest stake in Hess Midstream LP (NYSE:HESM) was held by Arrowstreet Capital, which reported holding $1.9 million worth of stock at the end of September. It was followed by Millennium Management with a $1.9 million position. Other investors bullish on the company included Heronetta Management, Marshall Wace LLP, and Engineers Gate Manager. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to Hess Midstream LP (NYSE:HESM), around 1.53% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to HESM.

Due to the fact that Hess Midstream LP (NYSE:HESM) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies who were dropping their full holdings heading into Q4. At the top of the heap, Renaissance Technologies dropped the largest position of all the hedgies tracked by Insider Monkey, comprising an estimated $1.9 million in stock, and Russell Lucas’s Lucas Capital Management was right behind this move, as the fund dropped about $0.4 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Hess Midstream LP (NYSE:HESM). These stocks are Immunomedics, Inc. (NASDAQ:IMMU), Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), Millicom International Cellular S.A. (NASDAQ:TIGO), and Clean Harbors Inc (NYSE:CLH). This group of stocks’ market valuations are similar to HESM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IMMU 27 701345 -1
PNFP 13 32487 -3
TIGO 7 52524 0
CLH 25 244225 1
Average 18 257645 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $5 million in HESM’s case. Immunomedics, Inc. (NASDAQ:IMMU) is the most popular stock in this table. On the other hand Millicom International Cellular S.A. (NASDAQ:TIGO) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Hess Midstream LP (NYSE:HESM) is even less popular than TIGO. Hedge funds clearly dropped the ball on HESM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on HESM as the stock returned 96% so far in the second quarter and outperformed the market by an even larger margin.

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