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.
Tootsie Roll Industries, Inc. (NYSE:TR) has seen a decrease in enthusiasm from smart money lately. TR was in 13 hedge funds' portfolios at the end of June. There were 16 hedge funds in our database with TR positions at the end of the previous quarter. Our calculations also showed that TR 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 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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. Let's review the key hedge fund action encompassing Tootsie Roll Industries, Inc. (NYSE:TR).
Hedge fund activity in Tootsie Roll Industries, Inc. (NYSE:TR)
At Q2's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in TR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, GAMCO Investors was the largest shareholder of Tootsie Roll Industries, Inc. (NYSE:TR), with a stake worth $35.1 million reported as of the end of March. Trailing GAMCO Investors was Royce & Associates, which amassed a stake valued at $30.2 million. Renaissance Technologies, Prospector Partners, and Wallace Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Tootsie Roll Industries, Inc. (NYSE:TR) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there is a sect of funds that decided to sell off their positions entirely heading into Q3. Interestingly, Mike Vranos's Ellington cut the biggest investment of the 750 funds followed by Insider Monkey, comprising about $0.6 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund dumped about $0.6 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Tootsie Roll Industries, Inc. (NYSE:TR) but similarly valued. We will take a look at Stratasys, Ltd. (NASDAQ:SSYS), Actuant Corporation (NYSE:ATU), AnaptysBio, Inc. (NASDAQ:ANAB), and Clear Channel Outdoor Holdings, Inc. (NYSE:CCO). This group of stocks' market valuations match TR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSYS,16,176378,2 ATU,12,287386,3 ANAB,16,547980,-4 CCO,32,453766,21 Average,19,366378,5.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $93 million in TR's case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand Actuant Corporation (NYSE:ATU) is the least popular one with only 12 bullish hedge fund positions. Tootsie Roll Industries, Inc. (NYSE:TR) 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 TR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TR investors were disappointed as the stock returned 0.6% 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.