Were Hedge Funds Right About Souring On Magellan Midstream Partners (MMP)?

Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Magellan Midstream Partners, L.P. (NYSE:MMP).

Magellan Midstream Partners, L.P. (NYSE:MMP) has experienced a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that MMP isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

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We’re going to take a peek at the latest hedge fund action encompassing Magellan Midstream Partners, L.P. (NYSE:MMP).

What does the smart money think about Magellan Midstream Partners, L.P. (NYSE:MMP)?

At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in MMP a year ago. 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, Renaissance Technologies held the most valuable stake in Magellan Midstream Partners, L.P. (NYSE:MMP), which was worth $37.5 million at the end of the third quarter. On the second spot was Osterweis Capital Management which amassed $16.6 million worth of shares. Moreover, Perella Weinberg Partners, Citadel Investment Group, and PEAK6 Capital Management were also bullish on Magellan Midstream Partners, L.P. (NYSE:MMP), allocating a large percentage of their portfolios to this stock.

Since Magellan Midstream Partners, L.P. (NYSE:MMP) has experienced a decline in interest from hedge fund managers, it’s safe to say that there were a few hedge funds who sold off their positions entirely in the third quarter. Interestingly, Murray Stahl’s Horizon Asset Management dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $0.3 million in stock, and Ken Fisher’s Fisher Asset Management was right behind this move, as the fund sold off about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Magellan Midstream Partners, L.P. (NYSE:MMP). These stocks are Weibo Corp (NASDAQ:WB), MSCI Inc (NYSE:MSCI), Veeva Systems Inc (NYSE:VEEV), and Discovery, Inc. (NASDAQ:DISCA). This group of stocks’ market valuations match MMP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WB 17 349440 -6
MSCI 38 594822 2
VEEV 31 519680 0
DISCA 24 317991 1
Average 27.5 445483 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $86 million in MMP’s case. MSCI Inc (NYSE:MSCI) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Magellan Midstream Partners, L.P. (NYSE:MMP) is even less popular than WB. 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 MMP wasn’t in this group. Hedge funds that bet on MMP were disappointed as the stock returned 6.8% 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.