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Is Kinder Morgan Inc (KMI) Going to Burn These Hedge Funds?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Kinder Morgan Inc (NYSE:KMI).

Is Kinder Morgan Inc (NYSE:KMI) a sound stock to buy now? Money managers are turning bullish. The number of bullish hedge fund bets moved up by 10 recently. Our calculations also showed that KMI 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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Abrams

Let’s review the key hedge fund action regarding Kinder Morgan Inc (NYSE:KMI).

How are hedge funds trading Kinder Morgan Inc (NYSE:KMI)?

At Q3’s end, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KMI over the last 13 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

No of Hedge Funds with KMI Positions

More specifically, FPR Partners was the largest shareholder of Kinder Morgan Inc (NYSE:KMI), with a stake worth $531.3 million reported as of the end of September. Trailing FPR Partners was First Pacific Advisors LLC, which amassed a stake valued at $287.4 million. Abrams Capital Management, Citadel Investment Group, and Nokota Management were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, some big names were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, assembled the largest position in Kinder Morgan Inc (NYSE:KMI). Alyeska Investment Group had $27.2 million invested in the company at the end of the quarter. Ed Bosek’s BeaconLight Capital also initiated a $9.8 million position during the quarter. The following funds were also among the new KMI investors: Jeffrey Talpins’s Element Capital Management, Wayne Cooperman’s Cobalt Capital Management, and Andrew Weiss’s Weiss Asset Management.

Let’s check out hedge fund activity in other stocks similar to Kinder Morgan Inc (NYSE:KMI). These stocks are Waste Management, Inc. (NYSE:WM), Barclays PLC (NYSE:BCS), Credit Suisse Group AG (NYSE:CS), and SYSCO Corporation (NYSE:SYY). This group of stocks’ market caps are closest to KMI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WM 34 3428401 -2
BCS 11 584129 4
CS 13 126319 0
SYY 31 3821036 11
Average 22.25 1989971 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $1.99 billion. That figure was $1.50 billion in KMI’s case. Waste Management, Inc. (NYSE:WM) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Kinder Morgan Inc (NYSE:KMI) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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