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 Teck Resources Ltd (NYSE:TECK) and determine whether hedge funds skillfully traded this stock.
Is Teck Resources Ltd (NYSE:TECK) going to take off soon? Prominent investors were taking an optimistic view. The number of bullish hedge fund positions improved by 1 lately. Teck Resources Ltd (NYSE:TECK) was in 25 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 41. Our calculations also showed that TECK 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). There were 24 hedge funds in our database with TECK positions at the end of the first quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Now let's take a look at the new hedge fund action regarding Teck Resources Ltd (NYSE:TECK).
What have hedge funds been doing with Teck Resources Ltd (NYSE:TECK)?
At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TECK over the last 20 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arrowstreet Capital held the most valuable stake in Teck Resources Ltd (NYSE:TECK), which was worth $95.5 million at the end of the third quarter. On the second spot was Contrarius Investment Management which amassed $68.3 million worth of shares. Citadel Investment Group, Impala Asset Management, and Greenlight Capital 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 Contrarius Investment Management allocated the biggest weight to Teck Resources Ltd (NYSE:TECK), around 6.45% of its 13F portfolio. Maple Rock Capital is also relatively very bullish on the stock, designating 4.56 percent of its 13F equity portfolio to TECK.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Greenlight Capital, managed by David Einhorn, created the biggest position in Teck Resources Ltd (NYSE:TECK). Greenlight Capital had $25 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $6.8 million position during the quarter. The following funds were also among the new TECK investors: Ali Motamed's Invenomic Capital Management, Robert Vincent McHugh's Jade Capital Advisors, and Michael Gelband's ExodusPoint Capital.
Let's go over hedge fund activity in other stocks similar to Teck Resources Ltd (NYSE:TECK). These stocks are SolarWinds Corporation (NYSE:SWI), Casey's General Stores, Inc. (NASDAQ:CASY), LHC Group, Inc. (NASDAQ:LHCG), Prosperity Bancshares, Inc. (NYSE:PB), Legend Biotech Corporation (NASDAQ:LEGN), Deckers Outdoor Corp (NASDAQ:DECK), and Steel Dynamics, Inc. (NASDAQ:STLD). All of these stocks' market caps are similar to TECK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWI,19,2364868,5 CASY,23,152316,0 LHCG,30,159342,3 PB,27,109165,11 LEGN,28,551006,28 DECK,47,857767,16 STLD,30,370392,3 Average,29.1,652122,9.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $652 million. That figure was $330 million in TECK's case. Deckers Outdoor Corp (NASDAQ:DECK) is the most popular stock in this table. On the other hand SolarWinds Corporation (NYSE:SWI) is the least popular one with only 19 bullish hedge fund positions. Teck Resources Ltd (NYSE:TECK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TECK is 35. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. A small number of hedge funds were also right about betting on TECK as the stock returned 35.1% since the end of June (through September 25th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.