Kinder Morgan Energy Partners LP (NYSE:KMP): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

Kinder Morgan Energy Partners LP (NYSE:KMP) investors should pay attention to an increase in enthusiasm from smart money recently.

If you’d ask most shareholders, hedge funds are viewed as underperforming, outdated investment vehicles of years past. While there are greater than 8000 funds in operation at present, we at Insider Monkey hone in on the bigwigs of this group, close to 450 funds. It is estimated that this group controls the lion’s share of the smart money’s total capital, and by keeping an eye on their highest performing equity investments, we have discovered a few investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 25 percentage points in 6.5 month (see all of our picks from August).

Equally as beneficial, positive insider trading activity is a second way to parse down the investments you’re interested in. As the old adage goes: there are a variety of motivations for an insider to drop shares of his or her company, but just one, very clear reason why they would behave bullishly. Plenty of academic studies have demonstrated the market-beating potential of this tactic if piggybackers know where to look (learn more here).

Keeping this in mind, it’s important to take a peek at the recent action encompassing Kinder Morgan Energy Partners LP (NYSE:KMP).

What have hedge funds been doing with Kinder Morgan Energy Partners LP (NYSE:KMP)?

At year’s end, a total of 12 of the hedge funds we track were long in this stock, a change of 50% from the third quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings considerably.

Of the funds we track, Renaissance Technologies, managed by Jim Simons, holds the biggest position in Kinder Morgan Energy Partners LP (NYSE:KMP). Renaissance Technologies has a $78 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is OZ Management, managed by Daniel S. Och, which held a $18 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedgies with similar optimism include Richard Driehaus’s Driehaus Capital, Michael Messner’s Seminole Capital (Investment Mgmt) and Ken Griffin’s Citadel Investment Group.

As industrywide interest jumped, key money managers were leading the bulls’ herd. OZ Management, managed by Daniel S. Och, assembled the most outsized position in Kinder Morgan Energy Partners LP (NYSE:KMP). OZ Management had 18 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $11 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, Ken Griffin’s Citadel Investment Group, and Robert B. Gillam’s McKinley Capital Management.

What have insiders been doing with Kinder Morgan Energy Partners LP (NYSE:KMP)?

Insider purchases made by high-level executives is most useful when the primary stock in question has experienced transactions within the past half-year. Over the latest 180-day time period, Kinder Morgan Energy Partners LP (NYSE:KMP) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

With the returns exhibited by Insider Monkey’s tactics, everyday investors should always watch hedge fund and insider trading activity, and Kinder Morgan Energy Partners LP (NYSE:KMP) shareholders fit into this picture quite nicely.

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