Did Hedge Funds Make The Right Call On Tenneco Inc (TEN) ?

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 Tenneco Inc (NYSE:TEN) based on that data and determine whether they were really smart about the stock.

Is Tenneco Inc (NYSE:TEN) a buy, sell, or hold? The smart money was reducing their bets on the stock. The number of bullish hedge fund positions went down by 4 in recent months. Our calculations also showed that TEN 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.

Andy Redleaf of Whitebox Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a peek at the recent hedge fund action regarding Tenneco Inc (NYSE:TEN).

How are hedge funds trading Tenneco Inc (NYSE:TEN)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in TEN a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Icahn Capital LP was the largest shareholder of Tenneco Inc (NYSE:TEN), with a stake worth $20.3 million reported as of the end of September. Trailing Icahn Capital LP was Lyrical Asset Management, which amassed a stake valued at $9.3 million. Alta Fundamental Advisers, Millennium Management, and Whitebox Advisors 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 Alta Fundamental Advisers allocated the biggest weight to Tenneco Inc (NYSE:TEN), around 3.9% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, earmarking 0.23 percent of its 13F equity portfolio to TEN.

Seeing as Tenneco Inc (NYSE:TEN) has witnessed declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedgies that slashed their entire stakes in the first quarter. At the top of the heap, Renaissance Technologies sold off the biggest stake of all the hedgies monitored by Insider Monkey, worth close to $4.9 million in stock. Peter Algert and Kevin Coldiron’s fund, Algert Coldiron Investors, also dumped its stock, about $0.8 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Tenneco Inc (NYSE:TEN) but similarly valued. We will take a look at Tsakos Energy Navigation Ltd. (NYSE:TNP), Benefitfocus Inc (NASDAQ:BNFT), GasLog Ltd (NYSE:GLOG), and Cheetah Mobile Inc (NYSE:CMCM). This group of stocks’ market values are similar to TEN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $41 million in TEN’s case. Tsakos Energy Navigation Ltd. (NYSE:TNP) is the most popular stock in this table. On the other hand Cheetah Mobile Inc (NYSE:CMCM) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Tenneco Inc (NYSE:TEN) 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on TEN as the stock returned 117.8% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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