Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Rattler Midstream LP (NASDAQ:RTLR).
Is Rattler Midstream LP (NASDAQ:RTLR) a worthy investment today? Prominent investors are getting more optimistic. The number of bullish hedge fund bets improved by 1 recently. Our calculations also showed that RTLR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). RTLR was in 9 hedge funds' portfolios at the end of March. There were 8 hedge funds in our database with RTLR holdings at the end of the previous quarter.
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 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 58 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's analyze the recent hedge fund action regarding Rattler Midstream LP (NASDAQ:RTLR).
How have hedgies been trading Rattler Midstream LP (NASDAQ:RTLR)?
At the end of the first quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in RTLR 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.
More specifically, Zimmer Partners was the largest shareholder of Rattler Midstream LP (NASDAQ:RTLR), with a stake worth $16.7 million reported as of the end of September. Trailing Zimmer Partners was Cardinal Capital, which amassed a stake valued at $11.3 million. Prescott Group Capital Management, Alyeska Investment Group, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Prescott Group Capital Management allocated the biggest weight to Rattler Midstream LP (NASDAQ:RTLR), around 4.26% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, designating 0.56 percent of its 13F equity portfolio to RTLR.
As aggregate interest increased, key money managers were breaking ground themselves. Prescott Group Capital Management, managed by Phil Frohlich, assembled the most outsized position in Rattler Midstream LP (NASDAQ:RTLR). Prescott Group Capital Management had $8.6 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $0.8 million position during the quarter. The following funds were also among the new RTLR investors: Greg Eisner's Engineers Gate Manager, Israel Englander's Millennium Management, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Rattler Midstream LP (NASDAQ:RTLR) but similarly valued. We will take a look at TrustCo Bank Corp NY (NASDAQ:TRST), Relmada Therapeutics, Inc. (NASDAQ:RLMD), Tredegar Corporation (NYSE:TG), and Westlake Chemical Partners LP (NYSE:WLKP). All of these stocks' market caps match RTLR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRST,11,30498,-3 RLMD,9,149193,1 TG,10,60803,1 WLKP,3,1095,1 Average,8.25,60397,0 [/table]
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $44 million in RTLR's case. TrustCo Bank Corp NY (NASDAQ:TRST) is the most popular stock in this table. On the other hand Westlake Chemical Partners LP (NYSE:WLKP) is the least popular one with only 3 bullish hedge fund positions. Rattler Midstream LP (NASDAQ:RTLR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on RTLR as the stock returned 211% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
