Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Magellan Midstream Partners, L.P. (NYSE:MMP) makes for a good investment right now.
Magellan Midstream Partners, L.P. (NYSE:MMP) has seen an increase in enthusiasm from smart money lately. Our calculations also showed that MMP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the recent hedge fund action regarding Magellan Midstream Partners, L.P. (NYSE:MMP).
How are hedge funds trading Magellan Midstream Partners, L.P. (NYSE:MMP)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the third quarter of 2019. On the other hand, there were a total of 12 hedge funds with a bullish position in MMP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Magellan Midstream Partners, L.P. (NYSE:MMP) was held by Citadel Investment Group, which reported holding $20.6 million worth of stock at the end of September. It was followed by Osterweis Capital Management with a $17 million position. Other investors bullish on the company included Heronetta Management, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to Magellan Midstream Partners, L.P. (NYSE:MMP), around 9.33% of its 13F portfolio. BP Capital is also relatively very bullish on the stock, designating 4.63 percent of its 13F equity portfolio to MMP.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Magellan Midstream Partners, L.P. (NYSE:MMP). Arrowstreet Capital had $8 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $5.2 million investment in the stock during the quarter. The only other fund with a new position in the stock is Matthew Hulsizer’s PEAK6 Capital Management.
Let’s check out hedge fund activity in other stocks similar to Magellan Midstream Partners, L.P. (NYSE:MMP). We will take a look at CarMax Inc (NYSE:KMX), Yandex NV (NASDAQ:YNDX), NetApp Inc. (NASDAQ:NTAP), and Xylem Inc (NYSE:XYL). This group of stocks’ market valuations resemble MMP’s market valuation.
|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 34 hedge funds with bullish positions and the average amount invested in these stocks was $1071 million. That figure was $80 million in MMP’s case. CarMax Inc (NYSE:KMX) is the most popular stock in this table. On the other hand Xylem Inc (NYSE:XYL) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Magellan Midstream Partners, L.P. (NYSE:MMP) is even less popular than XYL. Hedge funds dodged a bullet by taking a bearish stance towards MMP. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately MMP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MMP investors were disappointed as the stock returned -46% during the same time period 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 most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.