Did Hedge Funds Make The Right Call On Teck Resources Ltd (TECK) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Teck Resources Ltd (NYSE:TECK) based on that data and determine whether they were really smart about the stock.

Teck Resources Ltd (NYSE:TECK) was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. TECK has experienced a decrease in activity from the world’s largest hedge funds recently. There were 30 hedge funds in our database with TECK positions at the end of the previous quarter. Our calculations also showed that TECK 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. 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 if you have any good ideas send us an email. Keeping this in mind let’s take a look at the latest hedge fund action regarding Teck Resources Ltd (NYSE:TECK).

What does smart money think about Teck Resources Ltd (NYSE:TECK)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in TECK a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Contrarius Investment Management was the largest shareholder of Teck Resources Ltd (NYSE:TECK), with a stake worth $72.8 million reported as of the end of September. Trailing Contrarius Investment Management was Arrowstreet Capital, which amassed a stake valued at $68.9 million. Impala Asset Management, Citadel Investment Group, and Masters 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 Contrarius Investment Management allocated the biggest weight to Teck Resources Ltd (NYSE:TECK), around 9.32% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, dishing out 3.97 percent of its 13F equity portfolio to TECK.

Due to the fact that Teck Resources Ltd (NYSE:TECK) has experienced a decline in interest from hedge fund managers, it’s easy to see that there were a few money managers that slashed their full holdings heading into Q4. Interestingly, Todd J. Kantor’s Encompass Capital Advisors sold off the biggest position of all the hedgies watched by Insider Monkey, comprising about $14.3 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund sold off about $10.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 6 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Teck Resources Ltd (NYSE:TECK). We will take a look at Churchill Downs Incorporated (NASDAQ:CHDN), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), Quidel Corporation (NASDAQ:QDEL), and Axalta Coating Systems Ltd (NYSE:AXTA). All of these stocks’ market caps match TECK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $429 million. That figure was $259 million in TECK’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 3 bullish hedge fund positions. Teck Resources Ltd (NYSE:TECK) is not the least popular stock in this group but hedge fund interest is still below 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on TECK as the stock returned 38.3% during the second quarter and outperformed the market by an even larger margin.

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