Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Tenneco Inc (NYSE:TEN) shareholders have witnessed a decrease in enthusiasm from smart money of late. TEN was in 12 hedge funds' portfolios at the end of the second quarter of 2019. There were 26 hedge funds in our database with TEN positions at the end of the previous quarter. Our calculations also showed that TEN isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's review the fresh hedge fund action encompassing Tenneco Inc (NYSE:TEN).
How are hedge funds trading Tenneco Inc (NYSE:TEN)?
At Q2's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -54% from the first quarter of 2019. On the other hand, there were a total of 24 hedge funds with a bullish position in TEN a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Icahn Capital LP held the most valuable stake in Tenneco Inc (NYSE:TEN), which was worth $62.7 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $14.5 million worth of shares. Moreover, Citadel Investment Group, Millennium Management, and GAMCO Investors were also bullish on Tenneco Inc (NYSE:TEN), allocating a large percentage of their portfolios to this stock.
Since Tenneco Inc (NYSE:TEN) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of money managers who sold off their positions entirely heading into Q3. Interestingly, Ric Dillon's Diamond Hill Capital cut the biggest position of all the hedgies followed by Insider Monkey, totaling close to $10.7 million in stock, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund dropped about $6.1 million worth. These transactions are important to note, as total hedge fund interest fell by 14 funds heading into Q3.
Let's go over hedge fund activity in other stocks similar to Tenneco Inc (NYSE:TEN). We will take a look at Hecla Mining Company (NYSE:HL), Sapiens International Corporation N.V. (NASDAQ:SPNS), HealthStream, Inc. (NASDAQ:HSTM), and MBIA Inc. (NYSE:MBI). All of these stocks' market caps are similar to TEN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HL,8,13607,-1 SPNS,8,22769,1 HSTM,13,45722,-1 MBI,18,203227,-1 Average,11.75,71331,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $113 million in TEN's case. MBIA Inc. (NYSE:MBI) is the most popular stock in this table. On the other hand Hecla Mining Company (NYSE:HL) is the least popular one with only 8 bullish hedge fund positions. Tenneco Inc (NYSE:TEN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on TEN as the stock returned 12.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.