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Were Hedge Funds Right About Dumping MPLX?

MPLX LP (NYSE:MPLX) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of December. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as AvalonBay Communities Inc (NYSE:AVB), State Street Corporation (NYSE:STT), and Worldpay, Inc. (NYSE:WP) to gather more data points.

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 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 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.

Richard Driehaus

We’re going to check out the recent hedge fund action surrounding MPLX LP (NYSE:MPLX).

How have hedgies been trading MPLX LP (NYSE:MPLX)?

At Q4’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in MPLX a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

MPLX_mar2019

The largest stake in MPLX LP (NYSE:MPLX) was held by Stockbridge Partners, which reported holding $177.6 million worth of stock at the end of September. It was followed by Zimmer Partners with a $107.4 million position. Other investors bullish on the company included Everett Capital Advisors, Highland Capital Management, and Dorset Management.

Since MPLX LP (NYSE:MPLX) has experienced a decline in interest from hedge fund managers, it’s safe to say that there is a sect of funds who sold off their positions entirely heading into Q3. Interestingly, Ken Griffin’s Citadel Investment Group said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $12 million in stock, and Charles Davidson and Joseph Jacobs’s Wexford Capital was right behind this move, as the fund said goodbye to about $4.1 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to MPLX LP (NYSE:MPLX). These stocks are AvalonBay Communities Inc (NYSE:AVB), State Street Corporation (NYSE:STT), Worldpay, Inc. (NYSE:WP), and Electronic Arts Inc. (NASDAQ:EA). This group of stocks’ market caps are similar to MPLX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVB 27 955741 1
STT 32 910556 -3
WP 48 2361851 -12
EA 57 2283589 -22
Average 41 1627934 -9

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1628 million. That figure was $332 million in MPLX’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks MPLX LP (NYSE:MPLX) is even less popular than AVB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately MPLX wasn’t in this group. Hedge funds that bet on MPLX were disappointed as the stock returned 10.9% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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