Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Terex Corporation (NYSE:TEX).
Terex Corporation (NYSE:TEX) has seen a decrease in support from the world's most elite money managers of late. Our calculations also showed that TEX 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.
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.
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 peek at the recent hedge fund action surrounding Terex Corporation (NYSE:TEX).
Hedge fund activity in Terex Corporation (NYSE:TEX)
At the end of the second quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the first quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in TEX a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Richard S. Pzena's Pzena Investment Management has the most valuable position in Terex Corporation (NYSE:TEX), worth close to $109 million, comprising 0.6% of its total 13F portfolio. On Pzena Investment Management's heels is Fisher Asset Management, managed by Ken Fisher, which holds a $63.6 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions comprise Richard McGuire's Marcato Capital Management, Cliff Asness's AQR Capital Management and Ken Griffin's Citadel Investment Group.
Since Terex Corporation (NYSE:TEX) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there exists a select few fund managers who were dropping their full holdings by the end of the second quarter. Intriguingly, Jeffrey Talpins's Element Capital Management sold off the largest investment of all the hedgies followed by Insider Monkey, worth an estimated $14.3 million in stock. Kenneth Squire's fund, 13D Management, also dropped its stock, about $13.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 6 funds by the end of the second quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Terex Corporation (NYSE:TEX) but similarly valued. These stocks are Mack-Cali Realty Corporation (NYSE:CLI), Jack in the Box Inc. (NASDAQ:JACK), OSI Systems, Inc. (NASDAQ:OSIS), and Verra Mobility Corporation (NASDAQ:VRRM). This group of stocks' market caps are similar to TEX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLI,13,153567,2 JACK,33,545628,-3 OSIS,13,65185,3 VRRM,21,173954,7 Average,20,234584,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $261 million in TEX's case. Jack in the Box Inc. (NASDAQ:JACK) is the most popular stock in this table. On the other hand Mack-Cali Realty Corporation (NYSE:CLI) is the least popular one with only 13 bullish hedge fund positions. Terex Corporation (NYSE:TEX) 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 TEX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TEX investors were disappointed as the stock returned -17% 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.