At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Western Midstream Partners, LP (NYSE:WES) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Western Midstream Partners, LP (NYSE:WES) a buy right now? The smart money was selling. The number of long hedge fund positions shrunk by 1 recently. Our calculations also showed that WES isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 58 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_26084" align="aligncenter" width="393"] Bruce Berkowitz of Fairholme (FAIRX)[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a look at the latest hedge fund action regarding Western Midstream Partners, LP (NYSE:WES).
Hedge fund activity in Western Midstream Partners, LP (NYSE:WES)
Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in WES a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the number one position in Western Midstream Partners, LP (NYSE:WES). Zimmer Partners has a $14.4 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $5.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions consist of Ken Griffin's Citadel Investment Group, Allan Teh's Kamunting Street Capital and David Tepper's Appaloosa Management LP. In terms of the portfolio weights assigned to each position Kamunting Street Capital allocated the biggest weight to Western Midstream Partners, LP (NYSE:WES), around 2.72% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, setting aside 1.25 percent of its 13F equity portfolio to WES.
Due to the fact that Western Midstream Partners, LP (NYSE:WES) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedgies that elected to cut their positions entirely last quarter. Intriguingly, Mark Coe's Intrinsic Edge Capital dumped the largest stake of the 750 funds tracked by Insider Monkey, worth an estimated $2 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $1.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Western Midstream Partners, LP (NYSE:WES). These stocks are Amarin Corporation plc (NASDAQ:AMRN), HB Fuller Co (NYSE:FUL), Columbia Property Trust Inc (NYSE:CXP), and United Community Banks Inc (NASDAQ:UCBI). This group of stocks' market caps match WES's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMRN,39,328086,3 FUL,18,124227,4 CXP,17,50559,-5 UCBI,11,28692,-5 Average,21.25,132891,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $28 million in WES's case. Amarin Corporation plc (NASDAQ:AMRN) is the most popular stock in this table. On the other hand United Community Banks Inc (NASDAQ:UCBI) is the least popular one with only 11 bullish hedge fund positions. Western Midstream Partners, LP (NYSE:WES) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on WES as the stock returned 221.4% during the second quarter and outperformed the market by an even larger margin.
Get real-time email alerts: Follow Western Midstream Partners Lp (NYSE:WES)
Disclosure: None. This article was originally published at Insider Monkey.