Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like TTM Technologies, Inc. (NASDAQ:TTMI).
TTM Technologies, Inc. (NASDAQ:TTMI) investors should be aware of an increase in activity from the world’s largest hedge funds of late. TTMI was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with TTMI holdings at the end of the previous quarter. Our calculations also showed that TTMI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Joel Greenblatt of Gotham Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s take a glance at the new hedge fund action surrounding TTM Technologies, Inc. (NASDAQ:TTMI).
How have hedgies been trading TTM Technologies, Inc. (NASDAQ:TTMI)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in TTMI a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in TTM Technologies, Inc. (NASDAQ:TTMI) was held by Divisar Capital, which reported holding $13 million worth of stock at the end of September. It was followed by Royce & Associates with a $6.6 million position. Other investors bullish on the company included Renaissance Technologies, Gotham Asset Management, and D E Shaw. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to TTM Technologies, Inc. (NASDAQ:TTMI), around 4.31% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to TTMI.
Consequently, some big names have jumped into TTM Technologies, Inc. (NASDAQ:TTMI) headfirst. Renaissance Technologies, created the biggest position in TTM Technologies, Inc. (NASDAQ:TTMI). Renaissance Technologies had $3.7 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $0.4 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Matthew Hulsizer’s PEAK6 Capital Management, and Mike Vranos’s Ellington.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as TTM Technologies, Inc. (NASDAQ:TTMI) but similarly valued. These stocks are Opko Health Inc. (NASDAQ:OPK), SemGroup Corp (NYSE:SEMG), 360 Finance, Inc. (NASDAQ:QFIN), and AeroVironment, Inc. (NASDAQ:AVAV). This group of stocks’ market valuations resemble TTMI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OPK | 13 | 10924 | -1 |
| SEMG | 18 | 120426 | 3 |
| QFIN | 4 | 733 | -5 |
| AVAV | 10 | 35594 | -2 |
| Average | 11.25 | 41919 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $30 million in TTMI’s case. SemGroup Corp (NYSE:SEMG) is the most popular stock in this table. On the other hand 360 Finance, Inc. (NASDAQ:QFIN) is the least popular one with only 4 bullish hedge fund positions. TTM Technologies, Inc. (NASDAQ:TTMI) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on TTMI, though not to the same extent, as the stock returned 9.9% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
