Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Energy Transfer L.P. (NYSE:ET) to find out whether there were any major changes in hedge funds’ views.
Is ET a good stock to buy? Hedge fund interest in Energy Transfer L.P. (NYSE:ET) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ET isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Li Auto Inc. (NASDAQ:LI), ArcelorMittal (NYSE:MT), and Bilibili Inc. (NASDAQ:BILI) to gather more data points.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to go over the fresh hedge fund action surrounding Energy Transfer L.P. (NYSE:ET).
Do Hedge Funds Think ET Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ET over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, David Abrams’s Abrams Capital Management has the number one position in Energy Transfer L.P. (NYSE:ET), worth close to $119.9 million, comprising 3.8% of its total 13F portfolio. Sitting at the No. 2 spot is David Tepper of Appaloosa Management LP, with a $102.8 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of Louis Bacon’s Moore Global Investments, Stuart J. Zimmer’s Zimmer Partners and Leon Cooperman’s Omega Advisors. In terms of the portfolio weights assigned to each position Raging Capital Management allocated the biggest weight to Energy Transfer L.P. (NYSE:ET), around 10.69% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, setting aside 7 percent of its 13F equity portfolio to ET.
Seeing as Energy Transfer L.P. (NYSE:ET) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedge funds who were dropping their positions entirely heading into Q4. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising close to $57.5 million in stock. John M. Angelo and Michael L. Gordon’s fund, Angelo Gordon & Co, also said goodbye to its stock, about $6.1 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Energy Transfer L.P. (NYSE:ET). We will take a look at Li Auto Inc. (NASDAQ:LI), ArcelorMittal (NYSE:MT), Bilibili Inc. (NASDAQ:BILI), Masco Corporation (NYSE:MAS), Livongo Health, Inc. (NASDAQ:LVGO), Pioneer Natural Resources Company (NYSE:PXD), and HEICO Corporation (NYSE:HEI). This group of stocks’ market caps match ET’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 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $707 million. That figure was $427 million in ET’s case. Livongo Health, Inc. (NASDAQ:LVGO) is the most popular stock in this table. On the other hand ArcelorMittal (NYSE:MT) is the least popular one with only 20 bullish hedge fund positions. Energy Transfer L.P. (NYSE:ET) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ET is 46.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on ET as the stock returned 28.8% since the end of the third quarter (through 12/18) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.