Do Hedge Funds Really Like Enbridge Inc (ENB)?
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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let's see whether Enbridge Inc (NYSE:ENB) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Enbridge Inc (NYSE:ENB) worth your attention right now? The best stock pickers are in a bullish mood. The number of long hedge fund bets increased by 1 lately. Our calculations also showed that ENB isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 41 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.
[caption id="attachment_26073" align="aligncenter" width="400"]
Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we're going to take a peek at the key hedge fund action encompassing Enbridge Inc (NYSE:ENB).
How are hedge funds trading Enbridge Inc (NYSE:ENB)?
Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in ENB a year ago. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Enbridge Inc (NYSE:ENB), with a stake worth $179.8 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $42.1 million. Galibier Capital Management, Mountain Road Advisors, 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 Galibier Capital Management allocated the biggest weight to Enbridge Inc (NYSE:ENB), around 6.6% of its 13F portfolio. Mountain Road Advisors is also relatively very bullish on the stock, earmarking 5.68 percent of its 13F equity portfolio to ENB.
Now, specific money managers were leading the bulls' herd. Mountain Road Advisors, managed by Gordon W Malin, created the most valuable position in Enbridge Inc (NYSE:ENB). Mountain Road Advisors had $15 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $1.9 million position during the quarter. The other funds with new positions in the stock are Donald Sussman's Paloma Partners, John Nevin Jr's Ayrshire Capital Management, and Ronald Hua's Qtron Investments.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Enbridge Inc (NYSE:ENB) but similarly valued. We will take a look at Mondelez International Inc (NASDAQ:MDLZ), Fiserv, Inc. (NASDAQ:FISV), Stryker Corporation (NYSE:SYK), and BlackRock, Inc. (NYSE:BLK). This group of stocks' market valuations resemble ENB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDLZ,50,2343152,-6 FISV,78,4174064,-2 SYK,43,833267,7 BLK,43,916922,-4 Average,53.5,2066851,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.5 hedge funds with bullish positions and the average amount invested in these stocks was $2067 million. That figure was $286 million in ENB's case. Fiserv, Inc. (NASDAQ:FISV) is the most popular stock in this table. On the other hand Stryker Corporation (NYSE:SYK) is the least popular one with only 43 bullish hedge fund positions. Compared to these stocks Enbridge Inc (NYSE:ENB) is even less popular than SYK. Hedge funds dodged a bullet by taking a bearish stance towards ENB. 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 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately ENB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ENB investors were disappointed as the stock returned -20.1% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
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