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Were Hedge Funds Right About Betting On Kinder Morgan Inc (KMI)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Kinder Morgan Inc (NYSE:KMI) and determine whether the smart money was really smart about this stock.

Kinder Morgan Inc (NYSE:KMI) investors should be aware of an increase in hedge fund interest of late. KMI was in 47 hedge funds’ portfolios at the end of the first quarter of 2020. There were 40 hedge funds in our database with KMI holdings at the end of the previous quarter. Our calculations also showed that KMI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the latest hedge fund action encompassing Kinder Morgan Inc (NYSE:KMI).

Hedge fund activity in Kinder Morgan Inc (NYSE:KMI)

At the end of the first quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in KMI over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is KMI A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, FPR Partners, managed by Bob Peck and Andy Raab, holds the most valuable position in Kinder Morgan Inc (NYSE:KMI). FPR Partners has a $226.8 million position in the stock, comprising 9.3% of its 13F portfolio. Coming in second is First Pacific Advisors LLC, led by Robert Rodriguez and Steven Romick, holding a $213.3 million position; 3% of its 13F portfolio is allocated to the company. Other peers that hold long positions include David Abrams’s Abrams Capital Management, Todd J. Kantor’s Encompass Capital Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position FPR Partners allocated the biggest weight to Kinder Morgan Inc (NYSE:KMI), around 9.32% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, designating 7.47 percent of its 13F equity portfolio to KMI.

As aggregate interest increased, key money managers have been driving this bullishness. Encompass Capital Advisors, managed by Todd J. Kantor, assembled the most outsized position in Kinder Morgan Inc (NYSE:KMI). Encompass Capital Advisors had $69.6 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $24.8 million position during the quarter. The other funds with new positions in the stock are Anand Parekh’s Alyeska Investment Group, Steve Cohen’s Point72 Asset Management, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Kinder Morgan Inc (NYSE:KMI) but similarly valued. These stocks are TAL Education Group (NYSE:TAL), Ross Stores, Inc. (NASDAQ:ROST), HCA Healthcare Inc (NYSE:HCA), and SBA Communications Corporation (NASDAQ:SBAC). All of these stocks’ market caps resemble KMI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TAL 38 1801280 8
ROST 49 982341 1
HCA 87 2171218 24
SBAC 46 1835315 1
Average 55 1697539 8.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $1698 million. That figure was $947 million in KMI’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand TAL Education Group (NYSE:TAL) is the least popular one with only 38 bullish hedge fund positions. Kinder Morgan Inc (NYSE:KMI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately KMI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); KMI investors were disappointed as the stock returned 10.9% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.