We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards The Timken Company (NYSE:TKR).
The Timken Company (NYSE:TKR) shareholders have witnessed an increase in hedge fund sentiment of late. Our calculations also showed that TKR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the new hedge fund action surrounding The Timken Company (NYSE:TKR).
Hedge fund activity in The Timken Company (NYSE:TKR)
At Q4’s end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in TKR a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of The Timken Company (NYSE:TKR), with a stake worth $106.6 million reported as of the end of September. Trailing AQR Capital Management was Adage Capital Management, which amassed a stake valued at $51.3 million. Arrowstreet Capital, Atlantic Investment Management, and Citadel Investment Group 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 Atlantic Investment Management allocated the biggest weight to The Timken Company (NYSE:TKR), around 8.35% of its 13F portfolio. Albar Capital is also relatively very bullish on the stock, designating 5.49 percent of its 13F equity portfolio to TKR.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, assembled the most valuable position in The Timken Company (NYSE:TKR). Moore Global Investments had $14.2 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $14.1 million position during the quarter. The other funds with new positions in the stock are Javier Velazquez’s Albar Capital, Robert Polak’s Anchor Bolt Capital, and Sander Gerber’s Hudson Bay Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Timken Company (NYSE:TKR) but similarly valued. We will take a look at Glacier Bancorp, Inc. (NASDAQ:GBCI), Rayonier Inc. (NYSE:RYN), Tripadvisor Inc (NASDAQ:TRIP), and Brighthouse Financial, Inc. (NASDAQ:BHF). This group of stocks’ market caps are closest to TKR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GBCI | 13 | 49723 | -1 |
| RYN | 14 | 360071 | -1 |
| TRIP | 39 | 794196 | 7 |
| BHF | 43 | 610609 | 14 |
| Average | 27.25 | 453650 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $454 million. That figure was $408 million in TKR’s case. Brighthouse Financial, Inc. (NASDAQ:BHF) is the most popular stock in this table. On the other hand Glacier Bancorp, Inc. (NASDAQ:GBCI) is the least popular one with only 13 bullish hedge fund positions. The Timken Company (NYSE:TKR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately TKR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TKR were disappointed as the stock returned -40.5% during the same time period 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
