Were Hedge Funds Right About TTM Technologies, Inc. (TTMI)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards TTM Technologies, Inc. (NASDAQ:TTMI) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is TTM Technologies, Inc. (NASDAQ:TTMI) a safe investment right now? The best stock pickers were reducing their bets on the stock. The number of long hedge fund positions fell by 1 recently. Our calculations also showed that TTMI 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). TTMI was in 10 hedge funds’ portfolios at the end of March. There were 11 hedge funds in our database with TTMI holdings at the end of the previous quarter.

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.

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the latest hedge fund action regarding TTM Technologies, Inc. (NASDAQ:TTMI).

What does smart money think about TTM Technologies, Inc. (NASDAQ:TTMI)?

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in TTMI a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in TTM Technologies, Inc. (NASDAQ:TTMI) was held by Millennium Management, which reported holding $22.6 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $16.9 million position. Other investors bullish on the company included Divisar Capital, Royce & Associates, 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 5.39% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, designating 0.14 percent of its 13F equity portfolio to TTMI.

Because TTM Technologies, Inc. (NASDAQ:TTMI) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedge funds that decided to sell off their positions entirely last quarter. Interestingly, Xiuping Li’s Opti Capital Management dumped the biggest investment of all the hedgies watched by Insider Monkey, worth close to $11.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $1.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to TTM Technologies, Inc. (NASDAQ:TTMI). We will take a look at Editas Medicine, Inc. (NASDAQ:EDIT), Universal Corp (NYSE:UVV), City Holding Company (NASDAQ:CHCO), and So-Young International Inc. (NASDAQ:SY). This group of stocks’ market caps resemble TTMI’s market cap.

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As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $64 million in TTMI’s case. Editas Medicine, Inc. (NASDAQ:EDIT) is the most popular stock in this table. On the other hand City Holding Company (NASDAQ:CHCO) is the least popular one with only 6 bullish hedge fund positions. TTM Technologies, Inc. (NASDAQ:TTMI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 but beat the market by 15.5 percentage points. Unfortunately TTMI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TTMI were disappointed as the stock returned 14.7% during the same time 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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