Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Noble Midstream Partners LP (NYSE:NBLX) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds' portfolios at the end of the second quarter of 2019. At the end of this article we will also compare NBLX to other stocks including Hertz Global Holdings, Inc. (NYSE:HTZ), US Ecology Inc. (NASDAQ:ECOL), and Raven Industries, Inc. (NASDAQ:RAVN) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the new hedge fund action surrounding Noble Midstream Partners LP (NYSE:NBLX).
How are hedge funds trading Noble Midstream Partners LP (NYSE:NBLX)?
At Q2's end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NBLX over the last 16 quarters. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Marshall Wace LLP, managed by Paul Marshall and Ian Wace, holds the most valuable position in Noble Midstream Partners LP (NYSE:NBLX). Marshall Wace LLP has a $3.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Marshall Wace LLP's heels is Ken Griffin of Citadel Investment Group, with a $1.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Emanuel J. Friedman's EJF Capital.
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 second 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 check out hedge fund activity in other stocks similar to Noble Midstream Partners LP (NYSE:NBLX). These stocks are Hertz Global Holdings, Inc. (NYSE:HTZ), US Ecology Inc. (NASDAQ:ECOL), Raven Industries, Inc. (NASDAQ:RAVN), and NextGen Healthcare, Inc. (NASDAQ:NXGN). This group of stocks' market values resemble NBLX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HTZ,30,916881,4 ECOL,5,6575,-4 RAVN,12,106797,1 NXGN,14,46230,1 Average,15.25,269121,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $6 million in NBLX's case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand US Ecology Inc. (NASDAQ:ECOL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Noble Midstream Partners LP (NYSE:NBLX) is even less popular than ECOL. Hedge funds dodged a bullet by taking a bearish stance towards NBLX. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NBLX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NBLX investors were disappointed as the stock returned -25.8% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.