At Insider Monkey we follow nearly 750 of the best-performing investors and even though many of them lost money in the last couple of months of 2018 (some actually delivered very strong returns), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.
Tempur Sealy International Inc. (NYSE:TPX) was in 29 hedge funds' portfolios at the end of the first quarter of 2019. TPX has seen a decrease in support from the world's most elite money managers recently. There were 31 hedge funds in our database with TPX holdings at the end of the previous quarter. Our calculations also showed that TPX isn't among the 30 most popular stocks among hedge funds. However, we need to compare these numbers to other similarly valued stocks' statistics to understand what hedge funds really think about TPX>
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 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 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.
We're going to take a look at the recent hedge fund action surrounding Tempur Sealy International Inc. (NYSE:TPX).
Hedge fund activity in Tempur Sealy International Inc. (NYSE:TPX)
At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in TPX over the last 15 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Tempur Sealy International Inc. (NYSE:TPX) was held by H Partners Management, which reported holding $461.4 million worth of stock at the end of March. It was followed by Route One Investment Company with a $246.5 million position. Other investors bullish on the company included Centerbridge Partners, Manor Road Capital Partners, and Scopus Asset Management.
Because Tempur Sealy International Inc. (NYSE:TPX) has experienced a decline in interest from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of fund managers that slashed their full holdings by the end of the third quarter. At the top of the heap, Steven Boyd's Armistice Capital sold off the biggest stake of the 700 funds tracked by Insider Monkey, comprising an estimated $34.1 million in stock, and Derek C. Schrier's Indaba Capital Management was right behind this move, as the fund said goodbye to about $25.8 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Tempur Sealy International Inc. (NYSE:TPX) but similarly valued. We will take a look at Envestnet Inc (NYSE:ENV), UMB Financial Corporation (NASDAQ:UMBF), Energizer Holdings, Inc. (NYSE:ENR), and Urban Outfitters, Inc. (NASDAQ:URBN). This group of stocks' market caps resemble TPX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENV,17,104260,5 UMBF,9,49060,-2 ENR,24,254116,3 URBN,25,415387,-3 Average,18.75,205706,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $1176 million in TPX's case. Urban Outfitters, Inc. (NASDAQ:URBN) is the most popular stock in this table. On the other hand UMB Financial Corporation (NASDAQ:UMBF) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Tempur Sealy International Inc. (NYSE:TPX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on TPX as the stock returned 24.9% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.