Were Hedge Funds Right About BP Midstream Partners LP (BPMP)?

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Reymerlyn Martin

Mon, Apr 20, 2020, 8:41 PM 6 min read

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In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider BP Midstream Partners LP (NYSE:BPMP) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Hedge fund interest in BP Midstream Partners LP (NYSE:BPMP) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Talos Energy, Inc. (NYSE:TALO), Sunrun Inc (NASDAQ:RUN), and Eagle Bancorp, Inc. (NASDAQ:EGBN) to gather more data points. Our calculations also showed that BPMP 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).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_746893" align="aligncenter" width="400"]

Paul Marshall of Marshall Wace[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor's coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager's coronavirus analysis). 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. Keeping this in mind we're going to check out the latest hedge fund action regarding BP Midstream Partners LP (NYSE:BPMP).

What have hedge funds been doing with BP Midstream Partners LP (NYSE:BPMP)?

At Q4's end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 3 hedge funds held shares or bullish call options in BPMP 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 BP Midstream Partners LP (NYSE:BPMP) was held by Permian Investment Partners, which reported holding $15.1 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $6.9 million position. Other investors bullish on the company included Marshall Wace LLP, Heronetta Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to BP Midstream Partners LP (NYSE:BPMP), around 3.75% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, dishing out 1.25 percent of its 13F equity portfolio to BPMP.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.

Let's go over hedge fund activity in other stocks similar to BP Midstream Partners LP (NYSE:BPMP). We will take a look at Talos Energy, Inc. (NYSE:TALO), Sunrun Inc (NASDAQ:RUN), Eagle Bancorp, Inc. (NASDAQ:EGBN), and Gibraltar Industries Inc (NASDAQ:ROCK). This group of stocks' market values match BPMP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TALO,14,62279,-2 RUN,23,470192,5 EGBN,18,36520,1 ROCK,23,147934,4 Average,19.5,179231,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $28 million in BPMP's case. Sunrun Inc (NASDAQ:RUN) is the most popular stock in this table. On the other hand Talos Energy, Inc. (NYSE:TALO) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks BP Midstream Partners LP (NYSE:BPMP) is even less popular than TALO. Hedge funds dodged a bullet by taking a bearish stance towards BPMP. 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 BPMP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BPMP investors were disappointed as the stock returned -41% 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.