We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Trinity Place Holdings Inc. (NYSE:TPHS).
Trinity Place Holdings Inc. (NYSE:TPHS) was in 12 hedge funds' portfolios at the end of September. TPHS has seen an increase in activity from the world's largest hedge funds lately. There were 10 hedge funds in our database with TPHS positions at the end of the previous quarter. Our calculations also showed that TPHS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_758450" align="aligncenter" width="450"] Martin Whitman of Third Avenue Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to review the fresh hedge fund action regarding Trinity Place Holdings Inc. (NYSE:TPHS).
Hedge fund activity in Trinity Place Holdings Inc. (NYSE:TPHS)
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TPHS over the last 17 quarters. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, MFP Investors held the most valuable stake in Trinity Place Holdings Inc. (NYSE:TPHS), which was worth $26.8 million at the end of the third quarter. On the second spot was Third Avenue Management which amassed $22.8 million worth of shares. Kahn Brothers, Steel Canyon Capital, and Millennium Management 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 MFP Investors allocated the biggest weight to Trinity Place Holdings Inc. (NYSE:TPHS), around 3.71% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, dishing out 2.06 percent of its 13F equity portfolio to TPHS.
As one would reasonably expect, some big names have jumped into Trinity Place Holdings Inc. (NYSE:TPHS) headfirst. Cove Street Capital, managed by Jeffrey Bronchick, created the most valuable position in Trinity Place Holdings Inc. (NYSE:TPHS). Cove Street Capital had $0.4 million invested in the company at the end of the quarter.
Let's go over hedge fund activity in other stocks similar to Trinity Place Holdings Inc. (NYSE:TPHS). These stocks are Perion Network Ltd (NASDAQ:PERI), Flotek Industries Inc (NYSE:FTK), RADCOM Ltd. (NASDAQ:RDCM), and Citizens Community Bancorp Inc. (NASDAQ:CZWI). This group of stocks' market caps resemble TPHS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PERI,3,9261,2 FTK,10,17580,0 RDCM,4,14881,0 CZWI,4,8408,1 Average,5.25,12533,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $61 million in TPHS's case. Flotek Industries Inc (NYSE:FTK) is the most popular stock in this table. On the other hand Perion Network Ltd (NASDAQ:PERI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Trinity Place Holdings Inc. (NYSE:TPHS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TPHS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TPHS were disappointed as the stock returned -23% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.