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Transportadora de Gas del Sur SA (TGS): Hedge Funds Cashing Out

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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Transportadora de Gas del Sur SA (NYSE:TGS) based on those filings.

Is Transportadora de Gas del Sur SA (NYSE:TGS) an excellent investment now? The best stock pickers are reducing their bets on the stock. The number of long hedge fund positions were trimmed by 4 in recent months. Our calculations also showed that TGS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). TGS was in 6 hedge funds' portfolios at the end of March. There were 10 hedge funds in our database with TGS holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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.

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Howard Marks of Oaktree Capital Management[/caption]

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to review the latest hedge fund action regarding Transportadora de Gas del Sur SA (NYSE:TGS).

What does smart money think about Transportadora de Gas del Sur SA (NYSE:TGS)?

At the end of the first quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TGS over the last 18 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Transportadora de Gas del Sur SA (NYSE:TGS) was held by Oaktree Capital Management, which reported holding $9.1 million worth of stock at the end of September. It was followed by Marathon Asset Management with a $1.3 million position. Other investors bullish on the company included Marshall Wace LLP, Renaissance Technologies, and Truvvo Partners. In terms of the portfolio weights assigned to each position Oaktree Capital Management allocated the biggest weight to Transportadora de Gas del Sur SA (NYSE:TGS), around 0.26% of its 13F portfolio. Marathon Asset Management is also relatively very bullish on the stock, dishing out 0.18 percent of its 13F equity portfolio to TGS.

Seeing as Transportadora de Gas del Sur SA (NYSE:TGS) has faced falling interest from the smart money, it's easy to see that there exists a select few fund managers that elected to cut their full holdings heading into Q4. At the top of the heap, Israel Englander's Millennium Management dumped the largest position of the "upper crust" of funds monitored by Insider Monkey, worth close to $2.7 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also sold off its stock, about $2 million worth. These transactions are important to note, as total hedge fund interest dropped by 4 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Transportadora de Gas del Sur SA (NYSE:TGS) but similarly valued. We will take a look at Passage Bio, Inc. (NASDAQ:PASG), Constellium SE (NYSE:CSTM), Tilray, Inc. (NASDAQ:TLRY), and Materion Corp (NYSE:MTRN). This group of stocks' market values match TGS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PASG,17,290618,17 CSTM,34,141047,-16 TLRY,14,19981,-1 MTRN,18,61318,0 Average,20.75,128241,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $128 million. That figure was $11 million in TGS's case. Constellium SE (NYSE:CSTM) is the most popular stock in this table. On the other hand Tilray, Inc. (NASDAQ:TLRY) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Transportadora de Gas del Sur SA (NYSE:TGS) is even less popular than TLRY. Hedge funds clearly dropped the ball on TGS as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on TGS as the stock returned 30.2% so far in the second quarter and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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