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How Did Kinder Morgan Inc (KMI) Perform In Comparison to Hedge Fund Favorites in 2019?

Debasis Saha

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Kinder Morgan Inc (NYSE:KMI) and see how the stock performed in comparison to hedge funds' consensus picks.

Is Kinder Morgan Inc (NYSE:KMI) a marvelous investment now? Prominent investors are reducing their bets on the stock. The number of long hedge fund positions went down by 4 recently. Our calculations also showed that KMI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_749689" align="alignnone" width="1600"] Christer Gardell of Cevian Capital[/caption]

Christer Gardell Cevian Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to review the new hedge fund action encompassing Kinder Morgan Inc (NYSE:KMI).

How have hedgies been trading Kinder Morgan Inc (NYSE:KMI)?

At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KMI over the last 17 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is KMI A Good Stock To Buy?

More specifically, FPR Partners was the largest shareholder of Kinder Morgan Inc (NYSE:KMI), with a stake worth $555.2 million reported as of the end of September. Trailing FPR Partners was First Pacific Advisors, which amassed a stake valued at $322 million. Abrams Capital Management, Renaissance Technologies, and Citadel Investment Group 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 FPR Partners allocated the biggest weight to Kinder Morgan Inc (NYSE:KMI), around 12.69% of its 13F portfolio. Claar Advisors is also relatively very bullish on the stock, earmarking 7.21 percent of its 13F equity portfolio to KMI.

Because Kinder Morgan Inc (NYSE:KMI) has experienced bearish sentiment from hedge fund managers, it's safe to say that there were a few fund managers that elected to cut their full holdings in the third quarter. At the top of the heap, Brett Barakett's Tremblant Capital sold off the largest position of the 750 funds followed by Insider Monkey, worth about $20.9 million in stock. Ed Bosek's fund, BeaconLight Capital, also said goodbye to its stock, about $11.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds in the third quarter.

Let's go over hedge fund activity in other stocks similar to Kinder Morgan Inc (NYSE:KMI). These stocks are L3Harris Technologies, Inc. (NASDAQ:LHX), American Electric Power Company, Inc. (NYSE:AEP), Lloyds Banking Group PLC (NYSE:LYG), and Applied Materials, Inc. (NASDAQ:AMAT). All of these stocks' market caps resemble KMI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LHX,48,2486967,18 AEP,31,1768736,4 LYG,7,52469,-1 AMAT,50,2356178,6 Average,34,1666088,6.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1666 million. That figure was $1468 million in KMI's case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 7 bullish hedge fund positions. Kinder Morgan Inc (NYSE:KMI) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on KMI as the stock returned 44.6% in 2019 through December 23rd and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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