Where Do Hedge Funds Stand On Hess Midstream LP (HESM)?

With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Hess Midstream LP (NYSE:HESM).

Hess Midstream LP (NYSE:HESM) was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 9. HESM investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. There were 6 hedge funds in our database with HESM holdings at the end of June. Our calculations also showed that HESM isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

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 S&P 500 ETFs by more than 66 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 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 stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s check out the latest hedge fund action surrounding Hess Midstream LP (NYSE:HESM).

What does smart money think about Hess Midstream LP (NYSE:HESM)?

At the end of September, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in HESM a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

More specifically, Arrowstreet Capital was the largest shareholder of Hess Midstream LP (NYSE:HESM), with a stake worth $2.7 million reported as of the end of September. Trailing Arrowstreet Capital was Millennium Management, which amassed a stake valued at $2.2 million. Heronetta Management, Citadel Investment Group, and Lucas Capital Management 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 Heronetta Management allocated the biggest weight to Hess Midstream LP (NYSE:HESM), around 1.97% of its 13F portfolio. Lucas Capital Management is also relatively very bullish on the stock, setting aside 0.29 percent of its 13F equity portfolio to HESM.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified HESM as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks similar to Hess Midstream LP (NYSE:HESM). We will take a look at IBEX Limited (NASDAQ:IBEX), Hebron Technology Co., Ltd. (NASDAQ:HEBT), Tidewater Inc. (NYSE:TDW), Pluristem Therapeutics Inc. (NASDAQ:PSTI), Leju Holdings Ltd (NYSE:LEJU), Cresud Sociedad Anonima Comercial, Inmobiliaria, Financiera y Agropecuaria (NASDAQ:CRESY), and Oil-Dri Corporation of America (NYSE:ODC). This group of stocks’ market values are similar to HESM’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.1 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $8 million in HESM’s case. Tidewater Inc. (NYSE:TDW) is the most popular stock in this table. On the other hand Hebron Technology Co., Ltd. (NASDAQ:HEBT) is the least popular one with only 1 bullish hedge fund positions. Hess Midstream LP (NYSE:HESM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HESM is 54. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on HESM as the stock returned 25% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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