Did Hedge Funds Make The Right Call On Taubman Centers, Inc. (TCO) ?

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 at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Taubman Centers, Inc. (NYSE:TCO) and determine whether the smart money was really smart about this stock.

Taubman Centers, Inc. (NYSE:TCO) has experienced an increase in enthusiasm from smart money lately. Our calculations also showed that TCO 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).

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.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we’re going to review the fresh hedge fund action surrounding Taubman Centers, Inc. (NYSE:TCO).

What does smart money think about Taubman Centers, Inc. (NYSE:TCO)?

At Q1’s end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 46% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TCO over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Pentwater Capital Management held the most valuable stake in Taubman Centers, Inc. (NYSE:TCO), which was worth $83.8 million at the end of the third quarter. On the second spot was Alpine Associates which amassed $57 million worth of shares. Water Island Capital, Carlson Capital, and York Capital Management 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 Litespeed Management allocated the biggest weight to Taubman Centers, Inc. (NYSE:TCO), around 5.14% of its 13F portfolio. Sandell Asset Management is also relatively very bullish on the stock, earmarking 3.88 percent of its 13F equity portfolio to TCO.

Consequently, specific money managers have jumped into Taubman Centers, Inc. (NYSE:TCO) headfirst. Pentwater Capital Management, managed by Matthew Halbower, created the largest position in Taubman Centers, Inc. (NYSE:TCO). Pentwater Capital Management had $83.8 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also initiated a $57 million position during the quarter. The other funds with brand new TCO positions are John Orrico’s Water Island Capital, Clint Carlson’s Carlson Capital, and James Dinan’s York Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Taubman Centers, Inc. (NYSE:TCO) but similarly valued. We will take a look at Gildan Activewear Inc (NYSE:GIL), Brighthouse Financial, Inc. (NASDAQ:BHF), Qurate Retail, Inc. (NASDAQ:QRTEA), and Lexington Realty Trust (NYSE:LXP). All of these stocks’ market caps match TCO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $479 million in TCO’s case. Qurate Retail, Inc. (NASDAQ:QRTEA) is the most popular stock in this table. On the other hand Lexington Realty Trust (NYSE:LXP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Taubman Centers, Inc. (NYSE:TCO) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately TCO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TCO were disappointed as the stock returned -9.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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