The market has been volatile in the fourth quarter as the Federal Reserve continued its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds' movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of EnLink Midstream LLC (NYSE:ENLC) and find out how it is affected by hedge funds' moves.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a look at the recent hedge fund action encompassing EnLink Midstream LLC (NYSE:ENLC).
How are hedge funds trading EnLink Midstream LLC (NYSE:ENLC)?
Heading into the first quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the second quarter of 2018. By comparison, 9 hedge funds held shares or bullish call options in ENLC a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, HBK Investments held the most valuable stake in EnLink Midstream LLC (NYSE:ENLC), which was worth $13.3 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $5.9 million worth of shares. Moreover, Millennium Management, Zimmer Partners, and Springbok Capital were also bullish on EnLink Midstream LLC (NYSE:ENLC), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, some big names were breaking ground themselves. Zimmer Partners, managed by Stuart J. Zimmer, initiated the biggest position in EnLink Midstream LLC (NYSE:ENLC). Zimmer Partners had $3.8 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle's Springbok Capital also initiated a $3.4 million position during the quarter. The following funds were also among the new ENLC investors: Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Michael Platt and William Reeves's BlueCrest Capital Mgmt..
Let's now take a look at hedge fund activity in other stocks similar to EnLink Midstream LLC (NYSE:ENLC). These stocks are IAMGOLD Corporation (NYSE:IAG), 8x8, Inc. (NYSE:EGHT), ESCO Technologies Inc. (NYSE:ESE), and BGC Partners, Inc. (NASDAQ:BGCP). This group of stocks' market caps resemble ENLC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IAG,14,174230,2 EGHT,17,195809,-1 ESE,5,7438,-1 BGCP,23,254032,-4 Average,14.75,157877,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $38 million in ENLC's case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand ESCO Technologies Inc. (NYSE:ESE) is the least popular one with only 5 bullish hedge fund positions. EnLink Midstream LLC (NYSE:ENLC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on ENLC as the stock returned 35.4% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.