The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Tetra Tech, Inc. (NASDAQ:TTEK), and what that likely means for the prospects of the company and its stock.
Tetra Tech, Inc. (NASDAQ:TTEK) was in 17 hedge funds’ portfolios at the end of September. TTEK investors should pay attention to an increase in enthusiasm from smart money of late. There were 11 hedge funds in our database with TTEK holdings at the end of the previous quarter. Our calculations also showed that TTEK isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to take a look at the fresh hedge fund action surrounding Tetra Tech, Inc. (NASDAQ:TTEK).
What have hedge funds been doing with Tetra Tech, Inc. (NASDAQ:TTEK)?
Heading into the fourth quarter of 2018, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 55% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TTEK over the last 13 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Millennium Management, managed by Israel Englander, holds the largest position in Tetra Tech, Inc. (NASDAQ:TTEK). Millennium Management has a $14.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, led by Jim Simons, holding a $9.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish contain Noam Gottesman’s GLG Partners, Martin Whitman’s Third Avenue Management and Joel Greenblatt’s Gotham Asset Management.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, initiated the most valuable position in Tetra Tech, Inc. (NASDAQ:TTEK). Millennium Management had $14.5 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also initiated a $8.5 million position during the quarter. The other funds with brand new TTEK positions are Ken Griffin’s Citadel Investment Group, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and David Costen Haley’s HBK Investments.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Tetra Tech, Inc. (NASDAQ:TTEK) but similarly valued. These stocks are Churchill Downs Incorporated (NASDAQ:CHDN), Cleveland-Cliffs Inc (NYSE:CLF), Endo International plc (NASDAQ:ENDP), and John Bean Technologies Corporation (NYSE:JBT). This group of stocks’ market caps match TTEK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHDN | 26 | 550485 | 4 |
| CLF | 25 | 446298 | 2 |
| ENDP | 22 | 774550 | 0 |
| JBT | 13 | 39442 | 2 |
| Average | 21.5 | 452694 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $453 million. That figure was $69 million in TTEK’s case. Churchill Downs Incorporated (NASDAQ:CHDN) is the most popular stock in this table. On the other hand John Bean Technologies Corporation (NYSE:JBT) is the least popular one with only 13 bullish hedge fund positions. Tetra Tech, Inc. (NASDAQ:TTEK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CHDN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
