Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Tronox Holdings plc (NYSE:TROX) has experienced a decrease in support from the world’s most elite money managers lately. Our calculations also showed that TROX 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.
Jonathan Barrett of Luminus Management
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 look at the recent hedge fund action surrounding Tronox Holdings plc (NYSE:TROX).
What have hedge funds been doing with Tronox Holdings plc (NYSE:TROX)?
Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TROX over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Luminus Management, managed by Jonathan Barrett and Paul Segal, holds the largest position in Tronox Holdings plc (NYSE:TROX). Luminus Management has a $42.1 million position in the stock, comprising 1.2% of its 13F portfolio. Sitting at the No. 2 spot is Private Capital Management, led by Gregg J. Powers, holding a $25.8 million position; the fund has 4.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism comprise Robert Pohly’s Samlyn Capital, John W. Moon’s Moon Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Private Capital Management allocated the biggest weight to Tronox Holdings plc (NYSE:TROX), around 4.49% of its 13F portfolio. Moon Capital is also relatively very bullish on the stock, dishing out 1.47 percent of its 13F equity portfolio to TROX.
Because Tronox Holdings plc (NYSE:TROX) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of money managers that slashed their entire stakes in the third quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dropped the biggest position of all the hedgies watched by Insider Monkey, comprising an estimated $12.4 million in stock, Renaissance Technologies was right behind this move, as the fund dropped about $6.1 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Tronox Holdings plc (NYSE:TROX) but similarly valued. We will take a look at Milacron Holdings Corp (NYSE:MCRN), Turning Point Therapeutics, Inc. (NASDAQ:TPTX), 1st Source Corporation (NASDAQ:SRCE), and Par Pacific Holdings, Inc. (NYSE:PARR). This group of stocks’ market values resemble TROX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MCRN | 18 | 195679 | 5 |
| TPTX | 19 | 360630 | 4 |
| SRCE | 8 | 29774 | 2 |
| PARR | 15 | 106837 | 1 |
| Average | 15 | 173230 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $115 million in TROX’s case. Turning Point Therapeutics, Inc. (NASDAQ:TPTX) is the most popular stock in this table. On the other hand 1st Source Corporation (NASDAQ:SRCE) is the least popular one with only 8 bullish hedge fund positions. Tronox Holdings plc (NYSE:TROX) 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 TROX as the stock returned 40.1% 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.
