Is Brookfield Infrastructure Partners L.P. (BIP) Going to Burn These Hedge Funds?

Does Brookfield Infrastructure Partners L.P. (NYSE:BIP) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Brookfield Infrastructure Partners L.P. (NYSE:BIP) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare BIP to other stocks including Genuine Parts Company (NYSE:GPC), Franklin Resources, Inc. (NYSE:BEN), and Darden Restaurants, Inc. (NYSE:DRI) to get a better sense of its popularity.

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 Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s analyze the key hedge fund action regarding Brookfield Infrastructure Partners L.P. (NYSE:BIP).

Hedge fund activity in Brookfield Infrastructure Partners L.P. (NYSE:BIP)

At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 6 hedge funds with a bullish position in BIP a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Select Equity Group was the largest shareholder of Brookfield Infrastructure Partners L.P. (NYSE:BIP), with a stake worth $33.5 million reported as of the end of September. Trailing Select Equity Group was Two Sigma Advisors, which amassed a stake valued at $8.2 million. Citadel Investment Group, Horizon Asset Management, and Lucas Capital Management 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 Lucas Capital Management allocated the biggest weight to Brookfield Infrastructure Partners L.P. (NYSE:BIP), around 3.28% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, earmarking 0.23 percent of its 13F equity portfolio to BIP.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Driehaus Capital).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Brookfield Infrastructure Partners L.P. (NYSE:BIP) but similarly valued. These stocks are Genuine Parts Company (NYSE:GPC), Franklin Resources, Inc. (NYSE:BEN), Darden Restaurants, Inc. (NYSE:DRI), and Dover Corporation (NYSE:DOV). This group of stocks’ market valuations are closest to BIP’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $583 million. That figure was $54 million in BIP’s case. Franklin Resources, Inc. (NYSE:BEN) is the most popular stock in this table. On the other hand Genuine Parts Company (NYSE:GPC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Brookfield Infrastructure Partners L.P. (NYSE:BIP) is even less popular than GPC. 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. A small number of hedge funds were also right about betting on BIP, though not to the same extent, as the stock returned 6% during the fourth quarter (through 11/30) and outperformed the market as well.

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