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

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. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Kinder Morgan Inc (NYSE:KMI).

Is Kinder Morgan Inc (NYSE:KMI) a buy right now? Money managers are in an optimistic mood. The number of long hedge fund positions inched up by 2 recently. Our calculations also showed that KMI 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). KMI was in 40 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 38 hedge funds in our database with KMI holdings at the end of the previous quarter.

According to most market participants, hedge funds are seen as unimportant, outdated investment vehicles of the past. While there are over 8000 funds in operation at present, We choose to focus on the bigwigs of this group, around 850 funds. Most estimates calculate that this group of people administer most of the smart money’s total asset base, and by keeping an eye on their highest performing equity investments, Insider Monkey has figured out several investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

David Abrams

David Abrams of Abrams Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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. With all of this in mind we’re going to go over the recent hedge fund action regarding Kinder Morgan Inc (NYSE:KMI).

What have hedge funds been doing with Kinder Morgan Inc (NYSE:KMI)?

Heading into the first quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KMI over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, FPR Partners held the most valuable stake in Kinder Morgan Inc (NYSE:KMI), which was worth $575.8 million at the end of the third quarter. On the second spot was First Pacific Advisors LLC which amassed $305.5 million worth of shares. Abrams Capital Management, D E Shaw, and Two Sigma Advisors 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 FPR Partners allocated the biggest weight to Kinder Morgan Inc (NYSE:KMI), around 11.96% of its 13F portfolio. Claar Advisors is also relatively very bullish on the stock, dishing out 6.34 percent of its 13F equity portfolio to KMI.

With a general bullishness amongst the heavyweights, some big names have jumped into Kinder Morgan Inc (NYSE:KMI) headfirst. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the largest position in Kinder Morgan Inc (NYSE:KMI). Adage Capital Management had $13.6 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $1.2 million investment in the stock during the quarter. The following funds were also among the new KMI investors: Clint Carlson’s Carlson Capital, Peter Muller’s PDT Partners, and Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks similar to Kinder Morgan Inc (NYSE:KMI). These stocks are Capital One Financial Corp. (NYSE:COF), DuPont de Nemours Inc (NYSE:DD), Kimberly Clark Corporation (NYSE:KMB), and ING Groep N.V. (NYSE:ING). This group of stocks’ market valuations are closest to KMI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COF 50 2041230 3
DD 68 2372175 16
KMB 37 1058671 -5
ING 14 635357 4
Average 42.25 1526858 4.5

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 $1527 million. That figure was $1360 million in KMI’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 14 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 1.0% in 2020 through May 1st but beat the market by 12.9 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 -29.2% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
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.

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