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How Did Tempur Sealy International Inc. (TPX) Compare Against Hedge Fund Darlings in 2019?

Nina Todic

2018's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Tempur Sealy International Inc. (NYSE:TPX) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

Is Tempur Sealy International Inc. (NYSE:TPX) the right pick for your portfolio? The smart money is in a bearish mood. The number of long hedge fund bets retreated by 4 lately. Our calculations also showed that TPX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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.

[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to check out the recent hedge fund action regarding Tempur Sealy International Inc. (NYSE:TPX).

What does smart money think about Tempur Sealy International Inc. (NYSE:TPX)?

Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TPX over the last 17 quarters. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, H Partners Management held the most valuable stake in Tempur Sealy International Inc. (NYSE:TPX), which was worth $617.6 million at the end of the third quarter. On the second spot was Route One Investment Company which amassed $293 million worth of shares. Point72 Asset Management, Scopus Asset Management, and Two Sigma Advisors 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 H Partners Management allocated the biggest weight to Tempur Sealy International Inc. (NYSE:TPX), around 71.99% of its 13F portfolio. AWH Capital is also relatively very bullish on the stock, earmarking 9.77 percent of its 13F equity portfolio to TPX.

Since Tempur Sealy International Inc. (NYSE:TPX) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of funds that slashed their positions entirely by the end of the third quarter. Intriguingly, Mark T. Gallogly's Centerbridge Partners dumped the biggest stake of the "upper crust" of funds followed by Insider Monkey, comprising close to $132.5 million in stock, and Ryan Frick and Oliver Evans's Dorsal Capital Management was right behind this move, as the fund said goodbye to about $36.7 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.

Let's now review hedge fund activity in other stocks similar to Tempur Sealy International Inc. (NYSE:TPX). We will take a look at MSA Safety Incorporated (NYSE:MSA), VEON Ltd. (NASDAQ:VEON), Janus Henderson Group plc (NYSE:JHG), and Affiliated Managers Group, Inc. (NYSE:AMG). All of these stocks' market caps are similar to TPX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSA,9,51906,-5 VEON,11,44206,-1 JHG,14,183137,-1 AMG,20,446109,0 Average,13.5,181340,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $1355 million in TPX's case. Affiliated Managers Group, Inc. (NYSE:AMG) is the most popular stock in this table. On the other hand MSA Safety Incorporated (NYSE:MSA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Tempur Sealy International Inc. (NYSE:TPX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on TPX as the stock returned 110.3% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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