Is Summit Midstream Partners LP (SMLP) Going To Burn These Hedge Funds ?

Is Summit Midstream Partners LP (NYSE:SMLP) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Summit Midstream Partners LP (NYSE:SMLP) undervalued? The smart money is becoming hopeful. The number of bullish hedge fund positions advanced by 2 in recent months. Our calculations also showed that SMLP isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 40 percentage points since May 2014 through May 30, 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.

Matthew Hulsizer PEAK6 Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 check out the new hedge fund action encompassing Summit Midstream Partners LP (NYSE:SMLP).

How are hedge funds trading Summit Midstream Partners LP (NYSE:SMLP)?

Heading into the third quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in SMLP a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with SMLP Positions

When looking at the institutional investors followed by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the most valuable position in Summit Midstream Partners LP (NYSE:SMLP). Arrowstreet Capital has a $0.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Arrowstreet Capital’s heels is Perella Weinberg Partners holding a $0.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions consist of Ken Griffin’s Citadel Investment Group, Matthew Hulsizer’s PEAK6 Capital Management and .

As aggregate interest increased, specific money managers were leading the bulls’ herd. Perella Weinberg Partners established the biggest position in Summit Midstream Partners LP (NYSE:SMLP). Perella Weinberg Partners had $0.1 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $0.1 million position during the quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Summit Midstream Partners LP (NYSE:SMLP) but similarly valued. We will take a look at Pzena Investment Management Inc (NYSE:PZN), Barrett Business Services, Inc. (NASDAQ:BBSI), Huami Corporation (NYSE:HMI), and Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX). All of these stocks’ market caps are similar to SMLP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PZN 6 18972 -1
BBSI 11 81420 -2
HMI 6 11514 2
CRNX 10 267066 1
Average 8.25 94743 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $1 million in SMLP’s case. Barrett Business Services, Inc. (NASDAQ:BBSI) is the most popular stock in this table. On the other hand Pzena Investment Management Inc (NYSE:PZN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Summit Midstream Partners LP (NYSE:SMLP) is even less popular than PZN. Hedge funds dodged a bullet by taking a bearish stance towards SMLP. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SMLP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SMLP investors were disappointed as the stock returned -32.1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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