After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Turning Point Brands, Inc. (NYSE:TPB).
Turning Point Brands, Inc. (NYSE:TPB) was in 17 hedge funds' portfolios at the end of the third quarter of 2019. TPB has experienced an increase in hedge fund interest recently. There were 14 hedge funds in our database with TPB positions at the end of the previous quarter. Our calculations also showed that TPB 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_27480" align="alignnone" width="600"] Israel Englander of Millennium 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 as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's check out the recent hedge fund action encompassing Turning Point Brands, Inc. (NYSE:TPB).
What does smart money think about Turning Point Brands, Inc. (NYSE:TPB)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TPB over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Millennium Management was the largest shareholder of Turning Point Brands, Inc. (NYSE:TPB), with a stake worth $8.4 million reported as of the end of September. Trailing Millennium Management was D E Shaw, which amassed a stake valued at $6 million. Sabrepoint Capital, Citadel Investment Group, and Renaissance Technologies 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 Sabrepoint Capital allocated the biggest weight to Turning Point Brands, Inc. (NYSE:TPB), around 2.59% of its 13F portfolio. Parian Global Management is also relatively very bullish on the stock, setting aside 1.05 percent of its 13F equity portfolio to TPB.
Now, some big names have jumped into Turning Point Brands, Inc. (NYSE:TPB) headfirst. Parian Global Management, managed by Zachary Miller, established the most outsized position in Turning Point Brands, Inc. (NYSE:TPB). Parian Global Management had $2.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also made a $1.9 million investment in the stock during the quarter. The following funds were also among the new TPB investors: Peter Algert and Kevin Coldiron's Algert Coldiron Investors, Donald Sussman's Paloma Partners, and David Harding's Winton Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Turning Point Brands, Inc. (NYSE:TPB) but similarly valued. These stocks are Maxar Technologies Ltd. (NYSE:MAXR), OMNOVA Solutions Inc. (NYSE:OMN), Sundial Growers Inc. (NASDAQ:SNDL), and Magic Software Enterprises Ltd. (NASDAQ:MGIC). This group of stocks' market valuations match TPB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAXR,19,37391,7 OMN,19,96489,3 SNDL,8,22374,8 MGIC,2,4833,-1 Average,12,40272,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $39 million in TPB's case. Maxar Technologies Ltd. (NYSE:MAXR) is the most popular stock in this table. On the other hand Magic Software Enterprises Ltd. (NASDAQ:MGIC) is the least popular one with only 2 bullish hedge fund positions. Turning Point Brands, Inc. (NYSE:TPB) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on TPB as the stock returned 19.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.