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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Tetra Tech, Inc. (NASDAQ:TTEK) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Tetra Tech, Inc. (NASDAQ:TTEK) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Tetra Tech, Inc. (NASDAQ:TTEK) was in 19 hedge funds' portfolios at the end of June. The all time high for this statistics is 25. Our calculations also showed that TTEK isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a look at the recent hedge fund action surrounding Tetra Tech, Inc. (NASDAQ:TTEK).
How have hedgies been trading Tetra Tech, Inc. (NASDAQ:TTEK)?
At Q2's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TTEK over the last 20 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Value Holdings LP was the largest shareholder of Tetra Tech, Inc. (NASDAQ:TTEK), with a stake worth $22 million reported as of the end of September. Trailing Value Holdings LP was AQR Capital Management, which amassed a stake valued at $12.7 million. Renaissance Technologies, Sandler Capital Management, and GLG Partners 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 Value Holdings LP allocated the biggest weight to Tetra Tech, Inc. (NASDAQ:TTEK), around 7.87% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, designating 1.69 percent of its 13F equity portfolio to TTEK.
Seeing as Tetra Tech, Inc. (NASDAQ:TTEK) has faced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of hedgies who sold off their positions entirely last quarter. Interestingly, Principal Global Investors's Columbus Circle Investors dumped the biggest stake of the "upper crust" of funds monitored by Insider Monkey, worth about $9 million in stock. Brad Dunkley and Blair Levinsky's fund, Waratah Capital Advisors, also cut its stock, about $5.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Tetra Tech, Inc. (NASDAQ:TTEK) but similarly valued. We will take a look at Lancaster Colony Corporation (NASDAQ:LANC), Inovio Pharmaceuticals Inc (NYSE:INO), FTI Consulting, Inc. (NYSE:FCN), Tata Motors Limited (NYSE:TTM), Blueprint Medicines Corporation (NASDAQ:BPMC), Under Armour Inc (NYSE:UA), and Starwood Property Trust, Inc. (NYSE:STWD). This group of stocks' market valuations are similar to TTEK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LANC,19,246200,-4 INO,14,117679,6 FCN,32,377924,13 TTM,9,36380,-1 BPMC,38,1004517,2 UA,40,558888,3 STWD,22,168439,-1 Average,24.9,358575,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $359 million. That figure was $91 million in TTEK's case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 9 bullish hedge fund positions. Tetra Tech, Inc. (NASDAQ:TTEK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TTEK is 41.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on TTEK as the stock returned 20.9% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.