Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in ONEOK, Inc. (NYSE:OKE)? The smart money sentiment can provide an answer to this question.
Is OKE a good stock to buy now? ONEOK, Inc. (NYSE:OKE) investors should pay attention to a decrease in support from the world's most elite money managers in recent months. ONEOK, Inc. (NYSE:OKE) was in 20 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 31. Our calculations also showed that OKE isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's go over the new hedge fund action encompassing ONEOK, Inc. (NYSE:OKE).
Do Hedge Funds Think OKE Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the second quarter of 2020. On the other hand, there were a total of 26 hedge funds with a bullish position in OKE a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of ONEOK, Inc. (NYSE:OKE), with a stake worth $71.9 million reported as of the end of September. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $37 million. Zimmer Partners, Holocene Advisors, and Two Sigma Advisors 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 Heronetta Management allocated the biggest weight to ONEOK, Inc. (NYSE:OKE), around 3.35% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, earmarking 0.8 percent of its 13F equity portfolio to OKE.
Since ONEOK, Inc. (NYSE:OKE) has experienced declining sentiment from hedge fund managers, logic holds that there were a few money managers who sold off their entire stakes in the third quarter. It's worth mentioning that Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $3.8 million in stock, and Matthew L Pinz's Pinz Capital was right behind this move, as the fund cut about $3.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ONEOK, Inc. (NYSE:OKE) but similarly valued. These stocks are Dr. Reddy's Laboratories Limited (NYSE:RDY), Dynatrace, Inc. (NYSE:DT), Evergy, Inc. (NYSE:EVRG), Open Text Corporation (NASDAQ:OTEX), Whirlpool Corporation (NYSE:WHR), Teledyne Technologies Incorporated (NYSE:TDY), and Booz Allen Hamilton Holding Corporation (NYSE:BAH). This group of stocks' market valuations are closest to OKE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDY,13,208241,1 DT,46,1523927,5 EVRG,37,763391,-3 OTEX,19,160355,1 WHR,28,1212823,2 TDY,31,343280,-3 BAH,31,266718,6 Average,29.3,639819,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $640 million. That figure was $239 million in OKE's case. Dynatrace, Inc. (NYSE:DT) is the most popular stock in this table. On the other hand Dr. Reddy's Laboratories Limited (NYSE:RDY) is the least popular one with only 13 bullish hedge fund positions. ONEOK, Inc. (NYSE:OKE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OKE is 30. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on OKE as the stock returned 59.4% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.