Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards TC Pipelines, LP (NYSE:TCP).
TC Pipelines, LP (NYSE:TCP) was in 3 hedge funds' portfolios at the end of the fourth quarter of 2019. TCP has experienced a decrease in hedge fund interest of late. There were 5 hedge funds in our database with TCP positions at the end of the previous quarter. Our calculations also showed that TCP 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_746830" align="aligncenter" width="397"]
Matthew Hulsizer of PEAK6 Capital[/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. With all of this in mind let's check out the recent hedge fund action regarding TC Pipelines, LP (NYSE:TCP).
How are hedge funds trading TC Pipelines, LP (NYSE:TCP)?
At Q4's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the third quarter of 2019. On the other hand, there were a total of 2 hedge funds with a bullish position in TCP a year ago. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of TC Pipelines, LP (NYSE:TCP), with a stake worth $25.5 million reported as of the end of September. Trailing Arrowstreet Capital was PEAK6 Capital Management, which amassed a stake valued at $2.4 million. Driehaus Capital was 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 Arrowstreet Capital allocated the biggest weight to TC Pipelines, LP (NYSE:TCP), around 0.06% of its 13F portfolio. Chiron Investment Management is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to TCP.
Since TC Pipelines, LP (NYSE:TCP) has witnessed a decline in interest from hedge fund managers, it's easy to see that there was a specific group of fund managers who were dropping their entire stakes heading into Q4. At the top of the heap, Ken Griffin's Citadel Investment Group cut the biggest stake of the 750 funds followed by Insider Monkey, totaling an estimated $1.1 million in stock. Renaissance Technologies, also said goodbye to its stock, about $0.7 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to TC Pipelines, LP (NYSE:TCP). We will take a look at Hamilton Lane Incorporated (NASDAQ:HLNE), Brooks Automation, Inc. (NASDAQ:BRKS), Cogent Communications Holdings, Inc. (NASDAQ:CCOI), and Vishay Intertechnology, Inc. (NYSE:VSH). This group of stocks' market values match TCP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HLNE,10,77859,-5 BRKS,28,206427,14 CCOI,24,405167,-6 VSH,20,363288,-3 Average,20.5,263185,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $27 million in TCP's case. Brooks Automation, Inc. (NASDAQ:BRKS) is the most popular stock in this table. On the other hand Hamilton Lane Incorporated (NASDAQ:HLNE) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks TC Pipelines, LP (NYSE:TCP) is even less popular than HLNE. Hedge funds dodged a bullet by taking a bearish stance towards TCP. 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 TCP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TCP investors were disappointed as the stock returned -33.3% 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.
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.