Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like TC Pipelines, LP (NYSE:TCP).
Hedge fund interest in TC Pipelines, LP (NYSE:TCP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare TCP to other stocks including GATX Corporation (NYSE:GATX), Dana Incorporated (NYSE:DAN), and Rapid7 Inc (NASDAQ:RPD) to get a better sense of its popularity. Our calculations also showed that TCP isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the fresh hedge fund action surrounding TC Pipelines, LP (NYSE:TCP).
What does smart money think about TC Pipelines, LP (NYSE:TCP)?
Heading into the third quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TCP over the last 16 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of TC Pipelines, LP (NYSE:TCP), with a stake worth $9.2 million reported as of the end of March. Trailing Arrowstreet Capital was Renaissance Technologies, which amassed a stake valued at $4.5 million. Citadel Investment Group, Driehaus Capital, and Chiron Investment Management were also very fond of the stock, giving the stock large weights in their portfolios.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the second quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s also examine hedge fund activity in other stocks similar to TC Pipelines, LP (NYSE:TCP). These stocks are GATX Corporation (NYSE:GATX), Dana Incorporated (NYSE:DAN), Rapid7 Inc (NASDAQ:RPD), and TopBuild Corp (NYSE:BLD). This group of stocks’ market caps are closest to TCP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GATX | 13 | 224982 | 2 |
| DAN | 25 | 363492 | -2 |
| RPD | 25 | 386339 | -2 |
| BLD | 14 | 112473 | -3 |
| Average | 19.25 | 271822 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $272 million. That figure was $19 million in TCP’s case. Dana Incorporated (NYSE:DAN) is the most popular stock in this table. On the other hand GATX Corporation (NYSE:GATX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks TC Pipelines, LP (NYSE:TCP) is even less popular than GATX. Hedge funds clearly dropped the ball on TCP as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on TCP as the stock returned 9.9% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
