Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Triumph Group Inc (NYSE:TGI) and see how the stock is affected by the recent hedge fund activity.
Triumph Group Inc (NYSE:TGI) investors should be aware of an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that TGI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the latest hedge fund action encompassing Triumph Group Inc (NYSE:TGI).
How have hedgies been trading Triumph Group Inc (NYSE:TGI)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the second quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in TGI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Triumph Group Inc (NYSE:TGI), which was worth $32.4 million at the end of the third quarter. On the second spot was D E Shaw which amassed $13.9 million worth of shares. Royce & Associates, Millennium Management, and Marshall Wace 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 Adi Capital Management allocated the biggest weight to Triumph Group Inc (NYSE:TGI), around 3.51% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, designating 0.62 percent of its 13F equity portfolio to TGI.
Now, key money managers were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the largest position in Triumph Group Inc (NYSE:TGI). Marshall Wace had $1.4 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.5 million position during the quarter. The only other fund with a brand new TGI position is Cliff Asness’s AQR Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Triumph Group Inc (NYSE:TGI) but similarly valued. We will take a look at World Acceptance Corporation (NASDAQ:WRLD), Health Catalyst, Inc (NASDAQ:HCAT), Ballard Power Systems Inc. (NASDAQ:BLDP), and LendingClub Corporation (NYSE:LC). This group of stocks’ market valuations resemble TGI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WRLD | 14 | 167479 | 3 |
| HCAT | 13 | 45286 | 13 |
| BLDP | 6 | 3386 | 2 |
| LC | 8 | 3937 | -2 |
| Average | 10.25 | 55022 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $64 million in TGI’s case. World Acceptance Corporation (NASDAQ:WRLD) is the most popular stock in this table. On the other hand Ballard Power Systems Inc. (NASDAQ:BLDP) is the least popular one with only 6 bullish hedge fund positions. Triumph Group Inc (NYSE:TGI) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on TGI as the stock returned 21.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
