Were Hedge Funds Right About The Toro Company (TTC)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtThe Toro Company (NYSE:TTC) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

The Toro Company (NYSE:TTC) has experienced an increase in activity from the world’s largest hedge funds in recent months. TTC was in 24 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with TTC positions at the end of the previous quarter. Our calculations also showed that TTC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to review the new hedge fund action regarding The Toro Company (NYSE:TTC).

How are hedge funds trading The Toro Company (NYSE:TTC)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TTC over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Among these funds, Select Equity Group held the most valuable stake in The Toro Company (NYSE:TTC), which was worth $380.8 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $95.8 million worth of shares. Fisher Asset Management, Chilton Investment Company, and Millennium Management 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 Bishop Rock Capital allocated the biggest weight to The Toro Company (NYSE:TTC), around 4.1% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, setting aside 3.04 percent of its 13F equity portfolio to TTC.

Now, key hedge funds were leading the bulls’ herd. Millennium Management, managed by Israel Englander, assembled the largest position in The Toro Company (NYSE:TTC). Millennium Management had $19.2 million invested in the company at the end of the quarter. John Brennan’s Sirios Capital Management also initiated a $16.1 million position during the quarter. The other funds with new positions in the stock are Michael Cowley’s Sandbar Asset Management, Peter Muller’s PDT Partners, and Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks similar to The Toro Company (NYSE:TTC). We will take a look at Chemed Corporation (NYSE:CHE), Vornado Realty Trust (NYSE:VNO), WABCO Holdings Inc. (NYSE:WBC), and AngloGold Ashanti Limited (NYSE:AU). This group of stocks’ market values resemble TTC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $600 million. That figure was $676 million in TTC’s case. WABCO Holdings Inc. (NYSE:WBC) is the most popular stock in this table. On the other hand AngloGold Ashanti Limited (NYSE:AU) is the least popular one with only 19 bullish hedge fund positions. The Toro Company (NYSE:TTC) 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. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately TTC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TTC investors were disappointed as the stock returned 2.3% during the second 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.