We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article, we look at what those funds think of EnLink Midstream LLC (NYSE:ENLC) based on that data.
EnLink Midstream LLC (NYSE:ENLC) was in 11 hedge funds' portfolios at the end of December. ENLC investors should be aware of a decrease in enthusiasm from smart money recently. There were 12 hedge funds in our database with ENLC positions at the end of the previous quarter. Our calculations also showed that ENLC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
[caption id="attachment_670485" align="aligncenter" width="399"] Michael Platt of BlueCrest Capital Mgmt.[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to go over the latest hedge fund action surrounding EnLink Midstream LLC (NYSE:ENLC).
How have hedgies been trading EnLink Midstream LLC (NYSE:ENLC)?
Heading into the first quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the third quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in ENLC 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.
The largest stake in EnLink Midstream LLC (NYSE:ENLC) was held by Renaissance Technologies, which reported holding $10.2 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $6.7 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and Holocene Advisors. In terms of the portfolio weights assigned to each position Mariner Investment Group allocated the biggest weight to EnLink Midstream LLC (NYSE:ENLC), around 0.36% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, earmarking 0.06 percent of its 13F equity portfolio to ENLC.
Because EnLink Midstream LLC (NYSE:ENLC) has experienced falling interest from hedge fund managers, we can see that there is a sect of money managers who sold off their positions entirely by the end of the third quarter. Interestingly, Brett Hendrickson's Nokomis Capital sold off the biggest position of the 750 funds tracked by Insider Monkey, comprising about $12 million in stock. Jonathan Barrett and Paul Segal's fund, Luminus Management, also cut its stock, about $9.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as EnLink Midstream LLC (NYSE:ENLC) but similarly valued. These stocks are Agree Realty Corporation (NYSE:ADC), Cohen & Steers, Inc. (NYSE:CNS), Ameris Bancorp (NASDAQ:ABCB), and Penn National Gaming, Inc (NASDAQ:PENN). All of these stocks' market caps resemble ENLC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADC,18,228867,7 CNS,16,94094,0 ABCB,16,160287,0 PENN,27,131433,2 Average,19.25,153670,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $28 million in ENLC's case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand Cohen & Steers, Inc. (NYSE:CNS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks EnLink Midstream LLC (NYSE:ENLC) is even less popular than CNS. Hedge funds dodged a bullet by taking a bearish stance towards ENLC. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately ENLC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ENLC investors were disappointed as the stock returned -81.8% during the same time period 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 most of these stocks already outperformed the market so far in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.