We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Enable Midstream Partners LP (NYSE:ENBL) based on that data.
Enable Midstream Partners LP (NYSE:ENBL) has experienced a decrease in enthusiasm from smart money of late. Our calculations also showed that ENBL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 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 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 stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 let’s view the fresh hedge fund action surrounding Enable Midstream Partners LP (NYSE:ENBL).
What does smart money think about Enable Midstream Partners LP (NYSE:ENBL)?
At Q4’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. By comparison, 4 hedge funds held shares or bullish call options in ENBL a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in Enable Midstream Partners LP (NYSE:ENBL). Arrowstreet Capital has a $22.1 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Marshall Wace LLP, led by Paul Marshall and Ian Wace, holding a $13.3 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish include Ken Griffin’s Citadel Investment Group, Renaissance Technologies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Marshall Wace LLP allocated the biggest weight to Enable Midstream Partners LP (NYSE:ENBL), around 0.09% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.05 percent of its 13F equity portfolio to ENBL.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Zimmer Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified ENBL as a viable investment and initiated a position in the stock.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Enable Midstream Partners LP (NYSE:ENBL) but similarly valued. These stocks are Nomad Foods Limited (NYSE:NOMD), Dicks Sporting Goods Inc (NYSE:DKS), Axon Enterprise, Inc. (NASDAQ:AAXN), and LHC Group, Inc. (NASDAQ:LHCG). This group of stocks’ market caps are closest to ENBL’s market cap.
|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 28 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $39 million in ENBL’s case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand Axon Enterprise, Inc. (NASDAQ:AAXN) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Enable Midstream Partners LP (NYSE:ENBL) is even less popular than AAXN. Hedge funds dodged a bullet by taking a bearish stance towards ENBL. 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 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately ENBL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ENBL investors were disappointed as the stock returned -73.2% 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 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.