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We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like NGL Energy Partners LP (NYSE:NGL).
Hedge fund interest in NGL Energy Partners LP (NYSE:NGL) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as LexinFintech Holdings Ltd. (NASDAQ:LX), Heartland Express, Inc. (NASDAQ:HTLD), and Vector Group Ltd (NYSE:VGR) to gather more data points. Our calculations also showed that NGL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
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Bill Miller of Miller Value Partners[/caption]
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. With all of this in mind let's take a peek at the latest hedge fund action regarding NGL Energy Partners LP (NYSE:NGL).
How are hedge funds trading NGL Energy Partners LP (NYSE:NGL)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NGL over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the most valuable position in NGL Energy Partners LP (NYSE:NGL), worth close to $30 million, corresponding to 0.1% of its total 13F portfolio. Coming in second is Miller Value Partners, managed by Bill Miller, which holds a $6.6 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism consist of Matthew Hulsizer's PEAK6 Capital Management, James Dondero's Highland Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Miller Value Partners allocated the biggest weight to NGL Energy Partners LP (NYSE:NGL), around 0.27% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, designating 0.1 percent of its 13F equity portfolio to NGL.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as NGL Energy Partners LP (NYSE:NGL) but similarly valued. We will take a look at LexinFintech Holdings Ltd. (NASDAQ:LX), Heartland Express, Inc. (NASDAQ:HTLD), Vector Group Ltd (NYSE:VGR), and Edgewell Personal Care Company (NYSE:EPC). This group of stocks' market caps resemble NGL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LX,15,75258,0 HTLD,17,46403,4 VGR,17,170355,-1 EPC,18,164888,-7 Average,16.75,114226,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $39 million in NGL's case. Edgewell Personal Care Company (NYSE:EPC) is the most popular stock in this table. On the other hand LexinFintech Holdings Ltd. (NASDAQ:LX) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks NGL Energy Partners LP (NYSE:NGL) is even less popular than LX. Hedge funds dodged a bullet by taking a bearish stance towards NGL. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NGL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NGL investors were disappointed as the stock returned -26% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.