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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Phillips 66 Partners LP (NYSE:PSXP) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Hedge fund interest in Phillips 66 Partners LP (NYSE:PSXP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare PSXP to other stocks including Hologic, Inc. (NASDAQ:HOLX), Okta, Inc. (NASDAQ:OKTA), and Akamai Technologies, Inc. (NASDAQ:AKAM) to get a better sense of its popularity.
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a 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. Now we’re going to take a peek at the new hedge fund action encompassing Phillips 66 Partners LP (NYSE:PSXP).
What does smart money think about Phillips 66 Partners LP (NYSE:PSXP)?
Heading into the first quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in PSXP a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Phillips 66 Partners LP (NYSE:PSXP), with a stake worth $13.5 million reported as of the end of September. Trailing Arrowstreet Capital was BP Capital, which amassed a stake valued at $4.9 million. Heronetta Management, PEAK6 Capital Management, and Driehaus Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position BP Capital allocated the biggest weight to Phillips 66 Partners LP (NYSE:PSXP), around 4.87% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, earmarking 1.5 percent of its 13F equity portfolio to PSXP.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now review hedge fund activity in other stocks similar to Phillips 66 Partners LP (NYSE:PSXP). We will take a look at Hologic, Inc. (NASDAQ:HOLX), Okta, Inc. (NASDAQ:OKTA), Akamai Technologies, Inc. (NASDAQ:AKAM), and Carvana Co. (NYSE:CVNA). This group of stocks’ market values are closest to PSXP’s market value.
|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 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $1503 million. That figure was $23 million in PSXP’s case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Akamai Technologies, Inc. (NASDAQ:AKAM) is the least popular one with only 36 bullish hedge fund positions. Compared to these stocks Phillips 66 Partners LP (NYSE:PSXP) is even less popular than AKAM. Hedge funds dodged a bullet by taking a bearish stance towards PSXP. 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 PSXP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PSXP investors were disappointed as the stock returned -43.6% 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.