Is Magellan Midstream Partners, L.P. (MMP) Going to Burn These Hedge Funds?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Magellan Midstream Partners, L.P. (NYSE:MMP).

Hedge fund interest in Magellan Midstream Partners, L.P. (NYSE:MMP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MMP to other stocks including Pinterest, Inc. (NYSE:PINS), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), and CenterPoint Energy, Inc. (NYSE:CNP) to get a better sense of its popularity.

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

T Boone Pickens

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the recent hedge fund action regarding Magellan Midstream Partners, L.P. (NYSE:MMP).

What does smart money think about Magellan Midstream Partners, L.P. (NYSE:MMP)?

At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MMP over the last 16 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

No of Hedge Funds with MMP Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, John Osterweis’s Osterweis Capital Management has the largest position in Magellan Midstream Partners, L.P. (NYSE:MMP), worth close to $17.6 million, corresponding to 1.2% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $13.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that hold long positions encompass Perella Weinberg Partners, and T Boone Pickens’s BP Capital.

Judging by the fact that Magellan Midstream Partners, L.P. (NYSE:MMP) has faced a decline in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds that slashed their entire stakes in the second quarter. It’s worth mentioning that Renaissance Technologies said goodbye to the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling close to $29.2 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $1.6 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Magellan Midstream Partners, L.P. (NYSE:MMP) but similarly valued. These stocks are Pinterest, Inc. (NYSE:PINS), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), CenterPoint Energy, Inc. (NYSE:CNP), and Sea Limited (NYSE:SE). This group of stocks’ market values match MMP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PINS 31 402373 31
SSNC 41 1596822 4
CNP 29 1051355 -5
SE 60 3337823 10
Average 40.25 1597093 10

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $1597 million. That figure was $62 million in MMP’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand CenterPoint Energy, Inc. (NYSE:CNP) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Magellan Midstream Partners, L.P. (NYSE:MMP) is even less popular than CNP. Our calculations showed that top 20 most popular stocks (view the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on MMP, though not to the same extent, as the stock returned 5.2% during the third quarter and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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