Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Tiffany & Co. (NYSE:TIF).
Is Tiffany & Co. (NYSE:TIF) undervalued? Prominent investors are becoming more confident. The number of long hedge fund bets improved by 30 in recent months. Our calculations also showed that TIF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). TIF was in 62 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 32 hedge funds in our database with TIF positions at the end of the previous quarter.
If you’d ask most shareholders, hedge funds are viewed as underperforming, outdated investment vehicles of yesteryear. While there are greater than 8000 funds with their doors open today, Our experts choose to focus on the crème de la crème of this group, around 850 funds. These money managers orchestrate the majority of all hedge funds’ total asset base, and by observing their unrivaled picks, Insider Monkey has revealed several investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Clint Carlson of Carlson Capital
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 we’re going to check out the recent hedge fund action regarding Tiffany & Co. (NYSE:TIF).
What does smart money think about Tiffany & Co. (NYSE:TIF)?
At the end of the fourth quarter, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 94% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in TIF a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Carlson Capital was the largest shareholder of Tiffany & Co. (NYSE:TIF), with a stake worth $224.6 million reported as of the end of September. Trailing Carlson Capital was Pentwater Capital Management, which amassed a stake valued at $192.8 million. Magnetar Capital, Alpine Associates, and Balyasny Asset Management 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 Twin Capital Management allocated the biggest weight to Tiffany & Co. (NYSE:TIF), around 22.21% of its 13F portfolio. Sand Grove Capital Partners is also relatively very bullish on the stock, setting aside 14.88 percent of its 13F equity portfolio to TIF.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Carlson Capital, managed by Clint Carlson, initiated the most outsized position in Tiffany & Co. (NYSE:TIF). Carlson Capital had $224.6 million invested in the company at the end of the quarter. Matthew Halbower’s Pentwater Capital Management also initiated a $192.8 million position during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser’s Magnetar Capital, Robert Emil Zoellner’s Alpine Associates, and James Dinan’s York Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Tiffany & Co. (NYSE:TIF) but similarly valued. We will take a look at Discovery Communications Inc. (NASDAQ:DISCK), Grifols SA (NASDAQ:GRFS), NortonLifeLock Inc. (NASDAQ:NLOK), and Roku, Inc. (NASDAQ:ROKU). This group of stocks’ market values are closest to TIF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DISCK | 33 | 948913 | 0 |
| GRFS | 21 | 767478 | -1 |
| NLOK | 46 | 1623946 | 5 |
| ROKU | 34 | 231771 | -5 |
| Average | 33.5 | 893027 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $893 million. That figure was $2224 million in TIF’s case. NortonLifeLock Inc. (NASDAQ:NLOK) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Tiffany & Co. (NYSE:TIF) is more popular among hedge funds. 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 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on TIF as the stock returned -13.4% so far in Q1 (through March 16th) 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.
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.
