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Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Plains GP Holdings LP (NYSE:PAGP) and see how the stock is affected by the recent hedge fund activity.
Plains GP Holdings LP (NYSE:PAGP) has experienced an increase in hedge fund interest lately. PAGP was in 18 hedge funds' portfolios at the end of September. There were 17 hedge funds in our database with PAGP holdings at the end of the previous quarter. Our calculations also showed that PAGP 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Joshua Friedman of Canyon Capital Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to analyze the fresh hedge fund action regarding Plains GP Holdings LP (NYSE:PAGP).
How are hedge funds trading Plains GP Holdings LP (NYSE:PAGP)?
Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in PAGP a year ago. So, let's examine 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, Joshua Friedman and Mitchell Julis's Canyon Capital Advisors has the most valuable position in Plains GP Holdings LP (NYSE:PAGP), worth close to $69 million, comprising 1.5% of its total 13F portfolio. The second most bullish fund manager is Matt Smith of Deep Basin Capital, with a $58.9 million position; 4.7% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions contain Israel Englander's Millennium Management, Paul Marshall and Ian Wace's Marshall Wace and Renaissance Technologies. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Plains GP Holdings LP (NYSE:PAGP), around 4.65% of its 13F portfolio. Canyon Capital Advisors is also relatively very bullish on the stock, designating 1.49 percent of its 13F equity portfolio to PAGP.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the largest position in Plains GP Holdings LP (NYSE:PAGP). Citadel Investment Group had $9.8 million invested in the company at the end of the quarter. Jeffrey Talpins's Element Capital Management also made a $5.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Noam Gottesman's GLG Partners, and Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Plains GP Holdings LP (NYSE:PAGP) but similarly valued. We will take a look at Ingevity Corporation (NYSE:NGVT), GW Pharmaceuticals plc (NASDAQ:GWPH), Teradata Corporation (NYSE:TDC), and BJ's Wholesale Club Holdings, Inc. (NYSE:BJ). All of these stocks' market caps match PAGP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NGVT,20,144120,-1 GWPH,29,508771,13 TDC,20,247413,-2 BJ,23,275625,-10 Average,23,293982,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $294 million. That figure was $216 million in PAGP's case. GW Pharmaceuticals plc (NASDAQ:GWPH) is the most popular stock in this table. On the other hand Ingevity Corporation (NYSE:NGVT) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Plains GP Holdings LP (NYSE:PAGP) is even less popular than NGVT. Hedge funds dodged a bullet by taking a bearish stance towards PAGP. 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 PAGP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PAGP investors were disappointed as the stock returned -16.1% 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.