Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Energy Transfer L.P. (NYSE:ET) based on that data and determine whether they were really smart about the stock.
Energy Transfer L.P. (NYSE:ET) was in 31 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. ET investors should pay attention to a decrease in hedge fund sentiment of late. There were 33 hedge funds in our database with ET positions at the end of the first quarter. Our calculations also showed that ET isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now let’s review the latest hedge fund action surrounding Energy Transfer L.P. (NYSE:ET).
How are hedge funds trading Energy Transfer L.P. (NYSE:ET)?
At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in ET 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, David Tepper’s Appaloosa Management LP has the largest position in Energy Transfer L.P. (NYSE:ET), worth close to $107.7 million, comprising 1.9% of its total 13F portfolio. Sitting at the No. 2 spot is Abrams Capital Management, led by David Abrams, holding a $96.3 million position; 3.1% of its 13F portfolio is allocated to the company. Other peers with similar optimism comprise Louis Bacon’s Moore Global Investments, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Stuart J. Zimmer’s Zimmer Partners. In terms of the portfolio weights assigned to each position Kamunting Street Capital allocated the biggest weight to Energy Transfer L.P. (NYSE:ET), around 12.4% of its 13F portfolio. Raging Capital Management is also relatively very bullish on the stock, dishing out 12.35 percent of its 13F equity portfolio to ET.
Seeing as Energy Transfer L.P. (NYSE:ET) has faced falling interest from the entirety of the hedge funds we track, logic holds that there were a few fund managers who were dropping their full holdings in the second quarter. Interestingly, Seth Klarman’s Baupost Group dropped the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling close to $55.7 million in stock. Alec Litowitz and Ross Laser’s fund, Magnetar Capital, also sold off its stock, about $15.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the second quarter.
Let’s now review hedge fund activity in other stocks similar to Energy Transfer L.P. (NYSE:ET). These stocks are Church & Dwight Co., Inc. (NYSE:CHD), MarketAxess Holdings Inc. (NASDAQ:MKTX), Keysight Technologies Inc (NYSE:KEYS), Wipro Limited (NYSE:WIT), Entergy Corporation (NYSE:ETR), The Trade Desk, Inc. (NASDAQ:TTD), and Wayfair Inc (NYSE:W). This group of stocks’ market caps resemble ET’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHD,33,508177,-3 MKTX,33,918191,6 KEYS,47,564484,7 WIT,7,59120,0 ETR,32,953385,-2 TTD,20,513971,-5 W,41,3533920,7 Average,30.4,1007321,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $1007 million. That figure was $552 million in ET’s case. Keysight Technologies Inc (NYSE:KEYS) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 7 bullish hedge fund positions. Energy Transfer L.P. (NYSE:ET) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ET is 58.8. 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. This is a slightly positive signal but 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately ET wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ET were disappointed as the stock returned -13.1% 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
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