We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Tennant Company (NYSE:TNC).
Is Tennant Company (NYSE:TNC) a bargain? The smart money is getting more optimistic. The number of long hedge fund positions rose by 4 recently. Our calculations also showed that TNC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TNC was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. There were 6 hedge funds in our database with TNC holdings at the end of the previous quarter.
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Matthew Hulsizer of PEAK6 Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to review the recent hedge fund action regarding Tennant Company (NYSE:TNC).
What have hedge funds been doing with Tennant Company (NYSE:TNC)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in TNC a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Tennant Company (NYSE:TNC) was held by Royce & Associates, which reported holding $63.7 million worth of stock at the end of September. It was followed by GAMCO Investors with a $24.3 million position. Other investors bullish on the company included Intrinsic Edge Capital, SG Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Tennant Company (NYSE:TNC), around 0.59% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, earmarking 0.44 percent of its 13F equity portfolio to TNC.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Tennant Company (NYSE:TNC) headfirst. Intrinsic Edge Capital, managed by Mark Coe, created the most valuable position in Tennant Company (NYSE:TNC). Intrinsic Edge Capital had $3.7 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider’s SG Capital Management also initiated a $2.3 million position during the quarter. The other funds with new positions in the stock are Frederick DiSanto’s Ancora Advisors, Israel Englander’s Millennium Management, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s go over hedge fund activity in other stocks similar to Tennant Company (NYSE:TNC). These stocks are TTM Technologies, Inc. (NASDAQ:TTMI), Opko Health Inc. (NASDAQ:OPK), SemGroup Corp (NYSE:SEMG), and 360 Finance, Inc. (NASDAQ:QFIN). This group of stocks’ market caps are similar to TNC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TTMI | 10 | 30036 | 1 |
| OPK | 13 | 10924 | -1 |
| SEMG | 18 | 120426 | 3 |
| QFIN | 4 | 733 | -5 |
| Average | 11.25 | 40530 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $98 million in TNC’s case. SemGroup Corp (NYSE:SEMG) is the most popular stock in this table. On the other hand 360 Finance, Inc. (NASDAQ:QFIN) is the least popular one with only 4 bullish hedge fund positions. Tennant Company (NYSE:TNC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TNC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TNC investors were disappointed as the stock returned 5.6% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
