Legacy Ridge Capital sold SMC after calling it a 'massive mistake.' The fund cited reaching for yield and declining production — a lesson for midstream investors.
Alpha Score of 40 reflects weak overall profile with moderate momentum, poor value, moderate quality, moderate sentiment.
Legacy Ridge Capital Management sold its stake in Summit Midstream Corporation (NYSE: SMC) during the first half of 2026, reallocating the capital to an existing energy position. The Colorado-based hedge fund called the investment a "massive mistake" in its Q2 2026 investor letter.
"SMC was a massive investing mistake I made all the way back in 2017 and adopted into the partnership at its founding in 2018."
The fund said it held out hope for radical change until early 2026. The position became smaller as assets grew and value fell. The negative impact on early performance was severe. The investment cost the manager roughly 10% of his capital and flipped the partnership's first-year return to negative, the letter said.
Legacy Ridge cited reaching for yield and declining oil and gas production in the basins where SMC operated as key factors. Leverage also crept higher, the letter said. Those factors led to a downward spiral in cash flow. Change did occur under CEO Heath Deneke. The fund said Deneke saved the company and part of the investment. A more aggressive shareholder value strategy never materialized, the letter added.
As of Aug. 4, 2026, SMC closed at $30.38, giving it a market capitalization of $419.67 million. The stock posted a one-month return of 2.19%. Its shares gained 21.96% over the past 52 weeks. Ten hedge funds held SMC at the end of the first quarter, up from eight in the previous quarter, according to Insider Monkey data.
Legacy Ridge reported a net return of 15.7% in the first half of 2026, noting subdued volatility despite owning cyclical businesses. The letter said AI concerns and the Iran war drove market narratives. AI worries negatively impacted some sectors. Hard assets like energy infrastructure gained attention. The Iran war disrupted global oil supply but did not cause oil prices to spike as expected. The fund said microeconomic signals are positive for most portfolio holdings.
The fund said it reallocated the SMC proceeds to an existing energy position and sees better opportunities elsewhere. The letter did not name the new holding.
"The combination of me reaching for yield, not focusing enough on declining oil/gas production in a couple basins where they operated, and creeping leverage metrics, all led to a downward spiral in cash flow that was hard to escape," the letter said.
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