The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of Trinity Merger Corp. (NASDAQ:TMCX) and find out how it is affected by hedge funds’ moves.
Is Trinity Merger Corp. (NASDAQ:TMCX) undervalued? Hedge funds are betting on the stock. The number of bullish hedge fund bets increased by 1 recently. Our calculations also showed that TMCX isn’t among the 30 most popular stocks among hedge funds. TMCX was in 15 hedge funds’ portfolios at the end of the first quarter of 2019. There were 14 hedge funds in our database with TMCX holdings at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We’re going to check out the fresh hedge fund action surrounding Trinity Merger Corp. (NASDAQ:TMCX).
Hedge fund activity in Trinity Merger Corp. (NASDAQ:TMCX)
Heading into the second quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the fourth quarter of 2018. On the other hand, there were a total of 0 hedge funds with a bullish position in TMCX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Hawkeye Capital was the largest shareholder of Trinity Merger Corp. (NASDAQ:TMCX), with a stake worth $15.3 million reported as of the end of March. Trailing Hawkeye Capital was Glazer Capital, which amassed a stake valued at $10.9 million. Millennium Management, Hudson Bay Capital Management, and Owl Creek Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in Trinity Merger Corp. (NASDAQ:TMCX). Arrowstreet Capital had $0.6 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also made a $0.1 million investment in the stock during the quarter.
Let’s also examine hedge fund activity in other stocks similar to Trinity Merger Corp. (NASDAQ:TMCX). These stocks are Secoo Holding Limited (NASDAQ:SECO), SMART Global Holdings, Inc. (NASDAQ:SGH), EVI Industries, Inc. (NYSEAMEX:EVI), and MarineMax, Inc. (NYSE:HZO). This group of stocks’ market caps match TMCX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SECO | 8 | 18349 | 6 |
| SGH | 10 | 196404 | -4 |
| EVI | 1 | 2642 | 0 |
| HZO | 11 | 26952 | -6 |
| Average | 7.5 | 61087 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $66 million in TMCX’s case. MarineMax, Inc. (NYSE:HZO) is the most popular stock in this table. On the other hand EVI Industries, Inc. (NYSEAMEX:EVI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Trinity Merger Corp. (NASDAQ:TMCX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately TMCX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TMCX were disappointed as the stock returned 0.9% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
