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Shell Midstream Partners LP (SHLX): Are Hedge Funds Right About This Stock?

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Shell Midstream Partners LP (NYSE:SHLX).

Is Shell Midstream Partners LP (NYSE:SHLX) worth your attention right now? Prominent investors are in a pessimistic mood. The number of long hedge fund bets went down by 2 lately. Our calculations also showed that SHLX 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

BP 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. We’re going to analyze the key hedge fund action surrounding Shell Midstream Partners LP (NYSE:SHLX).

Hedge fund activity in Shell Midstream Partners LP (NYSE:SHLX)

At Q2’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the first quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in SHLX a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

SHLX_oct2019

The largest stake in Shell Midstream Partners LP (NYSE:SHLX) was held by BP Capital, which reported holding $5.1 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $4.9 million position. Other investors bullish on the company included Citadel Investment Group, Lucas Capital Management, and Wexford Capital.

Judging by the fact that Shell Midstream Partners LP (NYSE:SHLX) has experienced bearish sentiment from hedge fund managers, logic holds that there was a specific group of funds that elected to cut their entire stakes in the second quarter. Intriguingly, Stuart J. Zimmer’s Zimmer Partners cut the biggest stake of all the hedgies followed by Insider Monkey, totaling an estimated $4.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $0.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Shell Midstream Partners LP (NYSE:SHLX) but similarly valued. These stocks are Jabil Inc. (NYSE:JBL), Southwest Gas Corporation (NYSE:SWX), Armstrong World Industries, Inc. (NYSE:AWI), and TriNet Group Inc (NYSE:TNET). This group of stocks’ market valuations are similar to SHLX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JBL 26 315043 6
SWX 16 246360 -4
AWI 30 531242 5
TNET 21 430159 -3
Average 23.25 380701 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $12 million in SHLX’s case. Armstrong World Industries, Inc. (NYSE:AWI) is the most popular stock in this table. On the other hand Southwest Gas Corporation (NYSE:SWX) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Shell Midstream Partners LP (NYSE:SHLX) is even less popular than SWX. Hedge funds dodged a bullet by taking a bearish stance towards SHLX. 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 SHLX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SHLX investors were disappointed as the stock returned 0.7% 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.

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