Were Hedge Funds Wrong About Taubman Centers, Inc. (TCO)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Taubman Centers, Inc. (NYSE:TCO) changed recently.

Taubman Centers, Inc. (NYSE:TCO) was in 40 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. TCO investors should be aware of an increase in hedge fund interest lately. There were 38 hedge funds in our database with TCO positions at the end of the first quarter. Our calculations also showed that TCO 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. With all of this in mind let’s analyze the recent hedge fund action surrounding Taubman Centers, Inc. (NYSE:TCO).

How are hedge funds trading Taubman Centers, Inc. (NYSE:TCO)?

At Q2’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TCO over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Matthew Halbower’s Pentwater Capital Management has the most valuable position in Taubman Centers, Inc. (NYSE:TCO), worth close to $137.6 million, amounting to 2.5% of its total 13F portfolio. Coming in second is Alpine Associates, led by Robert Emil Zoellner, holding a $54.7 million position; the fund has 3.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Carl Tiedemann and Michael Tiedemann’s TIG Advisors, Jonathan Kolatch’s Redwood Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Litespeed Management allocated the biggest weight to Taubman Centers, Inc. (NYSE:TCO), around 8.52% of its 13F portfolio. White Square Capital is also relatively very bullish on the stock, dishing out 6.98 percent of its 13F equity portfolio to TCO.

As one would reasonably expect, key hedge funds have jumped into Taubman Centers, Inc. (NYSE:TCO) headfirst. Mason Capital Management, managed by Kenneth Mario Garschina, established the most valuable position in Taubman Centers, Inc. (NYSE:TCO). Mason Capital Management had $14.3 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $13.9 million position during the quarter. The following funds were also among the new TCO investors: John Paulson’s Paulson & Co, Donald Sussman’s Paloma Partners, and Curtis Schenker and Craig Effron’s Scoggin.

Let’s now review hedge fund activity in other stocks similar to Taubman Centers, Inc. (NYSE:TCO). These stocks are Rogers Corporation (NYSE:ROG), Boyd Gaming Corporation (NYSE:BYD), California Water Service Group (NYSE:CWT), Inspire Medical Systems, Inc. (NYSE:INSP), PacWest Bancorp (NASDAQ:PACW), Compania de Minas Buenaventura SA (NYSE:BVN), and South Jersey Industries Inc (NYSE:SJI). This group of stocks’ market caps are closest to TCO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $170 million. That figure was $522 million in TCO’s case. Boyd Gaming Corporation (NYSE:BYD) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura SA (NYSE:BVN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Taubman Centers, Inc. (NYSE:TCO) is more popular among hedge funds. Our overall hedge fund sentiment score for TCO is 87. 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. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately TCO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TCO were disappointed as the stock returned -11.5% since the end of the second quarter (through 10/30) 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.