Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. With this in mind let's see whether Holly Energy Partners, L.P. (NYSE:HEP) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Holly Energy Partners, L.P. (NYSE:HEP) investors should pay attention to a decrease in enthusiasm from smart money lately. Our calculations also showed that HEP 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).
In the 21st century investor’s toolkit there are numerous methods market participants have at their disposal to value their holdings. A couple of the most underrated methods are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the best money managers can outpace the broader indices by a very impressive margin (see the details here).
[caption id="attachment_746830" align="aligncenter" width="400"] Matthew Hulsizer of PEAK6 Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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. Keeping this in mind let's view the latest hedge fund action encompassing Holly Energy Partners, L.P. (NYSE:HEP).
What does smart money think about Holly Energy Partners, L.P. (NYSE:HEP)?
At Q4's end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. By comparison, 2 hedge funds held shares or bullish call options in HEP a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Holly Energy Partners, L.P. (NYSE:HEP), with a stake worth $9 million reported as of the end of September. Trailing Citadel Investment Group was Marshall Wace LLP, which amassed a stake valued at $8.1 million. Arrowstreet Capital, PEAK6 Capital Management, and PEAK6 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 Marshall Wace LLP allocated the biggest weight to Holly Energy Partners, L.P. (NYSE:HEP), around 0.06% of its 13F portfolio. PEAK6 Capital Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to HEP.
Judging by the fact that Holly Energy Partners, L.P. (NYSE:HEP) has experienced falling interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of fund managers that decided to sell off their positions entirely last quarter. Interestingly, Jonathan Soros's JS Capital dropped the largest position of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $0.2 million in stock, and T Boone Pickens's BP Capital was right behind this move, as the fund sold off about $0.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Holly Energy Partners, L.P. (NYSE:HEP) but similarly valued. These stocks are Urban Edge Properties (NYSE:UE), Worthington Industries, Inc. (NYSE:WOR), Cadence Bancorporation (NYSE:CADE), and First Merchants Corporation (NASDAQ:FRME). This group of stocks' market caps resemble HEP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UE,19,86028,6 WOR,25,61206,1 CADE,22,177353,2 FRME,12,111170,2 Average,19.5,108939,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $21 million in HEP's case. Worthington Industries, Inc. (NYSE:WOR) is the most popular stock in this table. On the other hand First Merchants Corporation (NASDAQ:FRME) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Holly Energy Partners, L.P. (NYSE:HEP) is even less popular than FRME. Hedge funds dodged a bullet by taking a bearish stance towards HEP. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately HEP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HEP investors were disappointed as the stock returned -42.7% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020. 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.