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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Shell Midstream Partners LP (NYSE:SHLX) changed recently.
Is Shell Midstream Partners (SHLX) a good stock to buy now? Hedge fund interest in Shell Midstream Partners LP (NYSE:SHLX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SHLX 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). 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 Exponent, Inc. (NASDAQ:EXPO), Emcor Group Inc (NYSE:EME), and FibroGen Inc (NASDAQ:FGEN) to gather more data points.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Stuart Zimmer of Zimmer Partners
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. With all of this in mind let's take a glance at the key hedge fund action encompassing Shell Midstream Partners LP (NYSE:SHLX).
What have hedge funds been doing with Shell Midstream Partners LP (NYSE:SHLX)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in SHLX over the last 21 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in Shell Midstream Partners LP (NYSE:SHLX). Arrowstreet Capital has a $14.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Zimmer Partners, managed by Stuart J. Zimmer, which holds a $5.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism comprise Marc Majzner's Clearline Capital, Robert Rodriguez and Steven Romick's First Pacific Advisors LLC and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Clearline Capital allocated the biggest weight to Shell Midstream Partners LP (NYSE:SHLX), around 0.37% of its 13F portfolio. Chiron Investment Management is also relatively very bullish on the stock, designating 0.16 percent of its 13F equity portfolio to SHLX.
Since Shell Midstream Partners LP (NYSE:SHLX) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of hedgies that elected to cut their entire stakes last quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP sold off the largest position of the 750 funds followed by Insider Monkey, worth close to $0.4 million in stock. Ken Griffin's fund, Citadel Investment Group, also dropped its stock, about $0.4 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Shell Midstream Partners LP (NYSE:SHLX) but similarly valued. These stocks are Exponent, Inc. (NASDAQ:EXPO), Emcor Group Inc (NYSE:EME), FibroGen Inc (NASDAQ:FGEN), Axis Capital Holdings Limited (NYSE:AXS), Colfax Corporation (NYSE:CFX), Novanta Inc. (NASDAQ:NOVT), and Ternium S.A. (NYSE:TX). This group of stocks' market valuations resemble SHLX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EXPO,25,80076,6 EME,29,177709,0 FGEN,24,301647,-1 AXS,23,585135,-12 CFX,45,756903,6 NOVT,19,112452,1 TX,8,126141,-1 Average,24.7,305723,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $306 million. That figure was $23 million in SHLX's case. Colfax Corporation (NYSE:CFX) is the most popular stock in this table. On the other hand Ternium S.A. (NYSE:TX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Shell Midstream Partners LP (NYSE:SHLX) is even less popular than TX. Our overall hedge fund sentiment score for SHLX is 18.8. 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. Hedge funds clearly dropped the ball on SHLX as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on SHLX as the stock returned 21.5% since Q3 (through November 27th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.