“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is Plains GP Holdings LP (NYSE:PAGP) the right investment to pursue these days? Money managers are getting less bullish. The number of long hedge fund bets retreated by 5 lately. Our calculations also showed that pagp isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
We’re going to check out the key hedge fund action surrounding Plains GP Holdings LP (NYSE:PAGP).
What does the smart money think about Plains GP Holdings LP (NYSE:PAGP)?
Heading into the first quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in PAGP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Canyon Capital Advisors, managed by Joshua Friedman and Mitchell Julis, holds the number one position in Plains GP Holdings LP (NYSE:PAGP). Canyon Capital Advisors has a $63.1 million position in the stock, comprising 1.5% of its 13F portfolio. The second most bullish fund manager is Deep Basin Capital, managed by Matt Smith, which holds a $34.9 million position; 4.4% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism consist of Daniel Arbess’s Perella Weinberg Partners, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw.
Due to the fact that Plains GP Holdings LP (NYSE:PAGP) has faced declining sentiment from hedge fund managers, it’s safe to say that there were a few money managers that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Matt Sirovich and Jeremy Mindich’s Scopia Capital dropped the biggest investment of the 700 funds tracked by Insider Monkey, worth an estimated $25.9 million in stock. David Zusman’s fund, Talara Capital Management, also said goodbye to its stock, about $20.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Plains GP Holdings LP (NYSE:PAGP). We will take a look at Cimpress NV (NASDAQ:CMPR), FireEye Inc (NASDAQ:FEYE), MasTec, Inc. (NYSE:MTZ), and F.N.B. Corp (NYSE:FNB). This group of stocks’ market caps match PAGP’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 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $358 million. That figure was $203 million in PAGP’s case. MasTec, Inc. (NYSE:MTZ) is the most popular stock in this table. On the other hand Cimpress NV (NASDAQ:CMPR) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Plains GP Holdings LP (NYSE:PAGP) is even less popular than CMPR. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on PAGP, though not to the same extent, as the stock returned 23.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.