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Is ONEOK, Inc. (OKE) Going to Burn These Hedge Funds?

Reymerlyn Martin

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 ONEOK, Inc. (NYSE:OKE).

Is ONEOK, Inc. (NYSE:OKE) the right pick for your portfolio? Hedge funds are getting more bullish. The number of long hedge fund positions rose by 2 lately. 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 below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the eyes of most traders, hedge funds are viewed as underperforming, outdated investment tools of years past. While there are more than 8000 funds trading at the moment, Our researchers choose to focus on the moguls of this club, about 750 funds. These money managers administer bulk of all hedge funds' total capital, and by shadowing their finest picks, Insider Monkey has identified a few investment strategies that have historically surpassed the market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_25717" align="aligncenter" width="548"] Steven Cohen of Point72 Asset Management[/caption]

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to analyze the key hedge fund action encompassing ONEOK, Inc. (NYSE:OKE).

What does smart money think about ONEOK, Inc. (NYSE:OKE)?

At Q3's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards OKE over the last 17 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the number one position in ONEOK, Inc. (NYSE:OKE). Zimmer Partners has a $111.8 million position in the stock, comprising 1.2% of its 13F portfolio. Coming in second is Millennium Management, led by Israel Englander, holding a $41.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish encompass Renaissance Technologies, Steve Cohen's Point72 Asset Management and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position BP Capital allocated the biggest weight to ONEOK, Inc. (NYSE:OKE), around 4.23% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, earmarking 1.3 percent of its 13F equity portfolio to OKE.

As industrywide interest jumped, specific money managers were leading the bulls' herd. Alyeska Investment Group, managed by Anand Parekh, initiated the most outsized position in ONEOK, Inc. (NYSE:OKE). Alyeska Investment Group had $21.4 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also initiated a $10.3 million position during the quarter. The other funds with new positions in the stock are Sara Nainzadeh's Centenus Global Management, Clint Carlson's Carlson Capital, and Dmitry Balyasny's Balyasny Asset Management.

Let's now take a look at hedge fund activity in other stocks similar to ONEOK, Inc. (NYSE:OKE). We will take a look at NXP Semiconductors NV (NASDAQ:NXPI), Atlassian Corporation Plc (NASDAQ:TEAM), AvalonBay Communities Inc (NYSE:AVB), and WEC Energy Group, Inc. (NYSE:WEC). This group of stocks' market valuations are similar to OKE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NXPI,59,3380862,-1 TEAM,46,2413494,10 AVB,19,537344,-2 WEC,19,383786,6 Average,35.75,1678872,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1679 million. That figure was $309 million in OKE's case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 19 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OKE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OKE investors were disappointed as the stock returned -2.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

Disclosure: None. This article was originally published at Insider Monkey.

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