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Was The Smart Money Right About Kinder Morgan Inc (KMI)?

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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the fourth quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Kinder Morgan Inc (NYSE:KMI) based on that data.

Is Kinder Morgan Inc (NYSE:KMI) going to take off soon? Hedge funds were becoming less confident. The number of bullish hedge fund positions dropped by 4 lately. Kinder Morgan Inc (NYSE:KMI) was in 42 hedge funds' portfolios at the end of December. The all time high for this statistic is 72. Our calculations also showed that KMI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 46 hedge funds in our database with KMI holdings at the end of September.

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 124 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.

David Abrams
David Abrams

David Abrams of Abrams Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's review the key hedge fund action regarding Kinder Morgan Inc (NYSE:KMI).

Do Hedge Funds Think KMI Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KMI over the last 22 quarters. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is KMI A Good Stock To Buy?
Is KMI A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bob Peck and Andy Raab's FPR Partners has the most valuable position in Kinder Morgan Inc (NYSE:KMI), worth close to $269.7 million, amounting to 7.9% of its total 13F portfolio. Sitting at the No. 2 spot is Robert Rodriguez and Steven Romick of First Pacific Advisors LLC, with a $178.4 million position; 2.3% of its 13F portfolio is allocated to the company. Some other peers that are bullish comprise David Abrams's Abrams Capital Management, John Overdeck and David Siegel's Two Sigma Advisors and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position FPR Partners allocated the biggest weight to Kinder Morgan Inc (NYSE:KMI), around 7.94% of its 13F portfolio. Quaker Capital Investments is also relatively very bullish on the stock, setting aside 5.12 percent of its 13F equity portfolio to KMI.

Since Kinder Morgan Inc (NYSE:KMI) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there was a specific group of funds that slashed their entire stakes last quarter. It's worth mentioning that Clint Carlson's Carlson Capital dumped the largest investment of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $2.8 million in stock. Ben Levine, Andrew Manuel and Stefan Renold's fund, LMR Partners, also dumped its stock, about $1.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Kinder Morgan Inc (NYSE:KMI) but similarly valued. We will take a look at Prudential Financial Inc (NYSE:PRU), Hilton Worldwide Holdings Inc (NYSE:HLT), ResMed Inc. (NYSE:RMD), Republic Services, Inc. (NYSE:RSG), QuantumScape Corporation (NYSE:QS), Zillow Group Inc (NASDAQ:Z), and LyondellBasell Industries NV (NYSE:LYB). This group of stocks' market valuations are similar to KMI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRU,36,532348,2 HLT,60,6029309,3 RMD,27,355462,-8 RSG,36,1099427,-1 QS,35,1848564,35 Z,83,5812175,14 LYB,27,682905,-4 Average,43.4,2337170,5.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.4 hedge funds with bullish positions and the average amount invested in these stocks was $2337 million. That figure was $1031 million in KMI's case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand ResMed Inc. (NYSE:RMD) is the least popular one with only 27 bullish hedge fund positions. Kinder Morgan Inc (NYSE:KMI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KMI is 31.9. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on KMI as the stock returned 29% since the end of the fourth quarter (through 4/30) and outperformed the market by an even larger margin.

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

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