Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Teck Resources Ltd (NYSE:TECK) changed recently.
Teck Resources Ltd (NYSE:TECK) was in 17 hedge funds' portfolios at the end of September. TECK shareholders have witnessed a decrease in hedge fund interest of late. There were 23 hedge funds in our database with TECK positions at the end of the previous quarter. Our calculations also showed that TECK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the latest hedge fund action encompassing Teck Resources Ltd (NYSE:TECK).
Hedge fund activity in Teck Resources Ltd (NYSE:TECK)
At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in TECK a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Impala Asset Management was the largest shareholder of Teck Resources Ltd (NYSE:TECK), with a stake worth $209.1 million reported as of the end of September. Trailing Impala Asset Management was Arrowstreet Capital, which amassed a stake valued at $185.2 million. GMT Capital, Renaissance Technologies, and Millennium Management 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 Impala Asset Management allocated the biggest weight to Teck Resources Ltd (NYSE:TECK), around 15.12% of its 13F portfolio. DC Capital Partners is also relatively very bullish on the stock, dishing out 3.56 percent of its 13F equity portfolio to TECK.
Because Teck Resources Ltd (NYSE:TECK) has witnessed falling interest from hedge fund managers, we can see that there is a sect of hedge funds who were dropping their positions entirely in the third quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management dropped the biggest position of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $9.2 million in call options, and Robert Bishop's Impala Asset Management was right behind this move, as the fund dropped about $6.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 6 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Teck Resources Ltd (NYSE:TECK) but similarly valued. We will take a look at RPM International Inc. (NYSE:RPM), Bright Horizons Family Solutions Inc (NYSE:BFAM), Brookfield Property Partners LP (NYSE:BPY), and Santander Consumer USA Holdings Inc (NYSE:SC). All of these stocks' market caps match TECK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RPM,32,410079,7 BFAM,27,216673,7 BPY,8,32207,2 SC,23,795446,-3 Average,22.5,363601,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $364 million. That figure was $575 million in TECK's case. RPM International Inc. (NYSE:RPM) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NYSE:BPY) is the least popular one with only 8 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 -3.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.