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Are Hedge Funds Going To Get Burned By Ternium S.A. (TX) ?

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·6 min read
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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article we look at what those investors think of Ternium S.A. (NYSE:TX).

Is Ternium S.A. (NYSE:TX) a first-rate investment today? Prominent investors are taking an optimistic view. The number of bullish hedge fund positions advanced by 1 in recent months. Our calculations also showed that TX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the eyes of most stock holders, hedge funds are assumed to be worthless, outdated investment vehicles of years past. While there are greater than 8000 funds in operation at the moment, We look at the upper echelon of this club, approximately 850 funds. Most estimates calculate that this group of people watch over bulk of the smart money's total asset base, and by shadowing their first-class equity investments, Insider Monkey has unearthed various investment strategies that have historically outperformed the broader indices. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_699750" align="aligncenter" width="399"]

Gifford Combs - Dalton Investments
Gifford Combs - Dalton Investments

Gifford Combs of Dalton Investments[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to analyze the fresh hedge fund action encompassing Ternium S.A. (NYSE:TX).

Hedge fund activity in Ternium S.A. (NYSE:TX)

At Q4's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TX over the last 18 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.

According to Insider Monkey's hedge fund database, Richard Oldfield's Oldfield Partners has the largest position in Ternium S.A. (NYSE:TX), worth close to $55 million, amounting to 4.9% of its total 13F portfolio. Sitting at the No. 2 spot is Contrarian Capital, led by Jon Bauer, holding a $42.1 million position; 5.2% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions include Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Gifford Combs's Dalton Investments and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Contrarian Capital allocated the biggest weight to Ternium S.A. (NYSE:TX), around 5.16% of its 13F portfolio. Oldfield Partners is also relatively very bullish on the stock, designating 4.88 percent of its 13F equity portfolio to TX.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Ternium S.A. (NYSE:TX). Arrowstreet Capital had $12.9 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $2.9 million investment in the stock during the quarter. The other funds with brand new TX positions are Louis Bacon's Moore Global Investments and Minhua Zhang's Weld Capital Management.

Let's also examine hedge fund activity in other stocks similar to Ternium S.A. (NYSE:TX). We will take a look at New Jersey Resources Corp (NYSE:NJR), Colfax Corporation (NYSE:CFX), Avnet, Inc. (NASDAQ:AVT), and Perspecta Inc. (NYSE:PRSP). This group of stocks' market values are similar to TX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NJR,20,118866,4 CFX,43,904378,12 AVT,33,856160,2 PRSP,46,598714,3 Average,35.5,619530,5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $124 million in TX's case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand New Jersey Resources Corp (NYSE:NJR) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Ternium S.A. (NYSE:TX) is even less popular than NJR. Hedge funds dodged a bullet by taking a bearish stance towards TX. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately TX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TX investors were disappointed as the stock returned -44.5% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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