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Were Hedge Funds Right About Piling Into Cheniere Energy, Inc. (LNG)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Cheniere Energy, Inc. (NYSE:LNG) and determine whether hedge funds skillfully traded this stock.

Is Cheniere Energy, Inc. (NYSE:LNG) the right investment to pursue these days? Money managers were getting less optimistic. The number of bullish hedge fund bets fell by 4 recently. Our calculations also showed that LNG 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.

In the 21st century investor’s toolkit there are dozens of methods stock market investors put to use to assess stocks. Two of the most underrated methods are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the S&P 500 by a significant margin (see the details here).

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Cheniere Energy, Inc. (NYSE:LNG).

How have hedgies been trading Cheniere Energy, Inc. (NYSE:LNG)?

Heading into the second quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LNG over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Carl Icahn’s Icahn Capital LP has the number one position in Cheniere Energy, Inc. (NYSE:LNG), worth close to $675.2 million, corresponding to 3.8% of its total 13F portfolio. Sitting at the No. 2 spot is Seth Klarman of Baupost Group, with a $272.2 million position; the fund has 4% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism consist of Michael Lowenstein’s Kensico Capital, Stuart J. Zimmer’s Zimmer Partners and Farhad Nanji and Michael DeMichele’s MFN Partners. In terms of the portfolio weights assigned to each position MFN Partners allocated the biggest weight to Cheniere Energy, Inc. (NYSE:LNG), around 16.03% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, designating 9.04 percent of its 13F equity portfolio to LNG.

Due to the fact that Cheniere Energy, Inc. (NYSE:LNG) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few hedgies who were dropping their positions entirely in the first quarter. Interestingly, Chris Yetter’s Dumont Global dumped the largest position of the 750 funds watched by Insider Monkey, comprising close to $54.4 million in stock, and David Tepper’s Appaloosa Management LP was right behind this move, as the fund sold off about $25 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Cheniere Energy, Inc. (NYSE:LNG). These stocks are Molina Healthcare, Inc. (NYSE:MOH), Avery Dennison Corporation (NYSE:AVY), Huazhu Group Limited (NASDAQ:HTHT), and Molson Coors Beverage Company (NYSE:TAP). This group of stocks’ market valuations match LNG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MOH 32 1223084 -3
AVY 18 82899 -4
HTHT 17 255677 -1
TAP 34 258923 3
Average 25.25 455146 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $455 million. That figure was $1881 million in LNG’s case. Molson Coors Beverage Company (NYSE:TAP) is the most popular stock in this table. On the other hand Huazhu Group Limited (NASDAQ:HTHT) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Cheniere Energy, Inc. (NYSE:LNG) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on LNG as the stock returned 44.2% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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