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Hedge Funds Are Selling Teck Resources Ltd (TECK)

Abigail Fisher

Is Teck Resources Ltd (NYSE:TECK) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Teck Resources Ltd (NYSE:TECK) going to take off soon? Prominent investors are getting less bullish. The number of long hedge fund bets were trimmed by 4 lately. Our calculations also showed that TECK isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

TECK_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's go over the fresh hedge fund action regarding Teck Resources Ltd (NYSE:TECK).

How are hedge funds trading Teck Resources Ltd (NYSE:TECK)?

At Q2's end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TECK over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Matthew Hulsizer PEAK6 Capital

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Impala Asset Management, managed by Robert Bishop, holds the most valuable position in Teck Resources Ltd (NYSE:TECK). Impala Asset Management has a $258.2 million position in the stock, comprising 11.6% of its 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $226.7 million position; 0.5% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions include Thomas E. Claugus's GMT Capital, Ken Griffin's Citadel Investment Group and Renaissance Technologies.

Due to the fact that Teck Resources Ltd (NYSE:TECK) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers who were dropping their full holdings last quarter. At the top of the heap, Jonathan Barrett and Paul Segal's Luminus Management cut the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $46.5 million in stock. Cliff Asness's fund, AQR Capital Management, also dumped its stock, about $40.7 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 4 funds last quarter.

Let's go over hedge fund activity in other stocks similar to Teck Resources Ltd (NYSE:TECK). These stocks are Varian Medical Systems, Inc. (NYSE:VAR), CenturyLink, Inc. (NYSE:CTL), Godaddy Inc (NYSE:GDDY), and MarketAxess Holdings Inc. (NASDAQ:MKTX). This group of stocks' market valuations match TECK's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VAR,25,621271,-7 CTL,27,1040787,-5 GDDY,44,2553762,-4 MKTX,18,365542,3 Average,28.5,1145341,-3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1145 million. That figure was $916 million in TECK's case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand MarketAxess Holdings Inc. (NASDAQ:MKTX) is the least popular one with only 18 bullish hedge fund positions. Teck Resources Ltd (NYSE:TECK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TECK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TECK investors were disappointed as the stock returned -29.5% during the third 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 many of these stocks already outperformed the market so far in 2019.

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

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