Is SemGroup Corp (SEMG) Going to Burn These Hedge Funds?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

SemGroup Corp (NYSE:SEMG) has experienced an increase in hedge fund sentiment recently. There were 22 hedge funds in our database with SEMG positions at the end of September, up by 2 quarter-over-quarter. 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 Travelport Worldwide Ltd (NYSE:TVPT), Trustmark Corp (NASDAQ:TRMK), and Platform Specialty Products Corp (NYSE:PAH) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

Hedge fund activity in SemGroup Corp (NYSE:SEMG)

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a rise of 10% from the second quarter of 2016, and the third-straight quarter with an increase in hedge fund ownership. The graph below displays the number of hedge funds with bullish position in SEMG over the last 5 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Iridian Asset Management, led by David Cohen and Harold Levy, holds the biggest position in SemGroup Corp (NYSE:SEMG). Iridian Asset Management has a $178.8 million position in the stock, comprising 1.6% of its 13F portfolio. Sitting at the No. 2 spot is Millennium Management, founded by Israel Englander, which holds a $98.9 million position. Some other members of the smart money with similar optimism encompass James Dondero’s Highland Capital Management, Jim Simons’ Renaissance Technologies, and Dmitry Balyasny’s Balyasny Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Balyasny Asset Management initiated the most outsized position in SemGroup Corp (NYSE:SEMG). Balyasny Asset Management had $13.1 million invested in the company at the end of the quarter. Paul Reeder and Edward Shapiro’s PAR Capital Management also initiated an $11.6 million position during the quarter. The other funds with new positions in the stock are Robert Emil Zoellner’s Alpine Associates, Steve Cohen’s Point72 Asset Management, and Richard Driehaus’ Driehaus Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as SemGroup Corp (NYSE:SEMG) but similarly valued. These stocks are Travelport Worldwide Ltd (NYSE:TVPT), Trustmark Corp (NASDAQ:TRMK), Platform Specialty Products Corp (NYSE:PAH), and Diplomat Pharmacy Inc (NYSE:DPLO). All of these stocks’ market caps are closest to SEMG’s market cap.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $378 million. That figure was $371 million in SEMG’s case. Platform Specialty Products Corp (NYSE:PAH) is the most popular stock in this table. On the other hand Trustmark Corp (NASDAQ:TRMK) is the least popular one with only 7 bullish hedge fund positions. SemGroup Corp (NYSE:SEMG) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PAH might be a better candidate to consider taking a long position in.

Disclosure: None