The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtTIM Participacoes SA (NYSE:TSU) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.
TIM Participacoes SA (NYSE:TSU) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of March. At the end of this article we will also compare TSU to other stocks including CF Industries Holdings, Inc. (NYSE:CF), Reliance Steel & Aluminum Co. (NYSE:RS), and IPG Photonics Corporation (NASDAQ:IPGP) to get a better sense of its popularity. Video: 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 S&P 500 ETFs by more than 58 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 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 stocks that are in our short portfolio.
[caption id="attachment_25305" align="aligncenter" width="392"] John Paulson of Paulson & Co[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's review the latest hedge fund action surrounding TIM Participacoes SA (NYSE:TSU).
What does smart money think about TIM Participacoes SA (NYSE:TSU)?
At Q1's end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TSU over the last 18 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of TIM Participacoes SA (NYSE:TSU), with a stake worth $82.4 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $25.7 million. Paulson & Co, Point72 Asset Management, 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 Paulson & Co allocated the biggest weight to TIM Participacoes SA (NYSE:TSU), around 0.78% of its 13F portfolio. Qtron Investments is also relatively very bullish on the stock, earmarking 0.25 percent of its 13F equity portfolio to TSU.
Seeing as TIM Participacoes SA (NYSE:TSU) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of funds that elected to cut their entire stakes heading into Q4. Intriguingly, Steven Tananbaum's GoldenTree Asset Management cut the largest investment of the "upper crust" of funds tracked by Insider Monkey, totaling close to $37.7 million in stock, and John W. Moon's Moon Capital was right behind this move, as the fund dropped about $0.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to TIM Participacoes SA (NYSE:TSU). We will take a look at CF Industries Holdings, Inc. (NYSE:CF), Reliance Steel & Aluminum Co. (NYSE:RS), IPG Photonics Corporation (NASDAQ:IPGP), and Natura &Co Holding S.A. (NYSE:NTCO). This group of stocks' market valuations are similar to TSU's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CF,34,606091,-7 RS,23,211117,-11 IPGP,20,150252,-5 NTCO,8,66680,8 Average,21.25,258535,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $259 million. That figure was $154 million in TSU's case. CF Industries Holdings, Inc. (NYSE:CF) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 8 bullish hedge fund positions. TIM Participacoes SA (NYSE:TSU) 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately TSU wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TSU investors were disappointed as the stock returned 6.4% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.