Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Tronox Holdings plc (NYSE:TROX) was in 20 hedge funds' portfolios at the end of June. TROX has seen a decrease in enthusiasm from smart money recently. There were 24 hedge funds in our database with TROX positions at the end of the previous quarter. Our calculations also showed that TROX isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most stock holders, hedge funds are seen as underperforming, outdated investment tools of the past. While there are more than 8000 funds in operation at present, Our researchers hone in on the moguls of this club, around 750 funds. These hedge fund managers shepherd most of all hedge funds' total asset base, and by paying attention to their unrivaled equity investments, Insider Monkey has identified a number of investment strategies that have historically surpassed Mr. Market. Insider Monkey's flagship hedge fund strategy exceeded the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. We're going to take a gander at the fresh hedge fund action encompassing Tronox Holdings plc (NYSE:TROX).
How are hedge funds trading Tronox Holdings plc (NYSE:TROX)?
Heading into the third quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TROX over the last 16 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Luminus Management was the largest shareholder of Tronox Holdings plc (NYSE:TROX), with a stake worth $63.9 million reported as of the end of March. Trailing Luminus Management was Private Capital Management, which amassed a stake valued at $35.9 million. Anchorage Advisors, Point72 Asset Management, and Moon Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Tronox Holdings plc (NYSE:TROX) has witnessed falling interest from the smart money, we can see that there is a sect of money managers who were dropping their full holdings in the second quarter. Intriguingly, Debra Fine's Fine Capital Partners dumped the largest stake of all the hedgies tracked by Insider Monkey, valued at about $26.7 million in stock, and Mark Kingdon's Kingdon Capital was right behind this move, as the fund dropped about $6.5 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds in the second quarter.
Let's go over hedge fund activity in other stocks similar to Tronox Holdings plc (NYSE:TROX). These stocks are Alexander's, Inc. (NYSE:ALX), Nevro Corp (NYSE:NVRO), Jumia Technologies AG (NYSE:JMIA), and Tricida, Inc. (NASDAQ:TCDA). This group of stocks' market caps are closest to TROX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALX,4,72690,0 NVRO,28,549758,-4 JMIA,8,8681,8 TCDA,17,904301,3 Average,14.25,383858,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $384 million. That figure was $175 million in TROX's case. Nevro Corp (NYSE:NVRO) is the most popular stock in this table. On the other hand Alexander's, Inc. (NYSE:ALX) is the least popular one with only 4 bullish hedge fund positions. Tronox Holdings plc (NYSE:TROX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 TROX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TROX were disappointed as the stock returned -34.7% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.