TC Energy Corporation (TRP) Fell Out Of Favor With Hedge Funds

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards TC Energy Corporation (NYSE:TRP) and determine whether hedge funds skillfully traded this stock.

Is TC Energy Corporation (NYSE:TRP) a marvelous stock to buy now? The best stock pickers were becoming less confident. The number of bullish hedge fund bets went down by 3 in recent months. TC Energy Corporation (NYSE:TRP) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 24. Our calculations also showed that TRP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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 stocks that are in our short portfolio.

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a peek at the key hedge fund action encompassing TC Energy Corporation (NYSE:TRP).

What does smart money think about TC Energy Corporation (NYSE:TRP)?

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TRP over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Schonfeld Strategic Advisors held the most valuable stake in TC Energy Corporation (NYSE:TRP), which was worth $108 million at the end of the third quarter. On the second spot was Luminus Management which amassed $27.2 million worth of shares. Heathbridge Capital Management, D E Shaw, and Renaissance Technologies 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 Heathbridge Capital Management allocated the biggest weight to TC Energy Corporation (NYSE:TRP), around 7.2% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, setting aside 3.53 percent of its 13F equity portfolio to TRP.

Because TC Energy Corporation (NYSE:TRP) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of money managers that slashed their positions entirely in the second quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling about $26.1 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $22.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as TC Energy Corporation (NYSE:TRP) but similarly valued. These stocks are Banco Santander, S.A. (NYSE:SAN), Keurig Dr Pepper Inc. (NASDAQ:KDP), Enterprise Products Partners L.P. (NYSE:EPD), Prudential Public Limited Company (NYSE:PUK), American Electric Power Company, Inc. (NYSE:AEP), DuPont de Nemours Inc (NYSE:DD), and The Kraft Heinz Company (NASDAQ:KHC). This group of stocks’ market caps match TRP’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $2329 million. That figure was $256 million in TRP’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 5 bullish hedge fund positions. TC Energy Corporation (NYSE:TRP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TRP is 41.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately TRP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TRP investors were disappointed as the stock returned -0.6% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.