Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about TriMas Corp (NASDAQ:TRS).
Is TRS a good stock to buy now? TRS has experienced a decrease in enthusiasm from smart money in recent months. TriMas Corp (NASDAQ:TRS) was in 14 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 19. There were 17 hedge funds in our database with TRS holdings at the end of June. Our calculations also showed that TRS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
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 66 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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we're going to take a gander at the recent hedge fund action encompassing TriMas Corp (NASDAQ:TRS).
Do Hedge Funds Think TRS Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in TRS a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
The largest stake in TriMas Corp (NASDAQ:TRS) was held by Pzena Investment Management, which reported holding $31.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $12.2 million position. Other investors bullish on the company included Arrowstreet Capital, Royce & Associates, and D E Shaw. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to TriMas Corp (NASDAQ:TRS), around 0.2% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.06 percent of its 13F equity portfolio to TRS.
Because TriMas Corp (NASDAQ:TRS) has faced declining sentiment from the smart money, it's easy to see that there lies a certain "tier" of money managers who were dropping their entire stakes by the end of the third quarter. It's worth mentioning that Efrem Kamen's Pura Vida Investments said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, valued at close to $3.2 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund sold off about $1.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to TriMas Corp (NASDAQ:TRS). We will take a look at Esperion Therapeutics (NASDAQ:ESPR), BrightSphere Investment Group Inc (NYSE:BSIG), PGT Innovations Inc. (NYSE:PGTI), EVO Payments, Inc. (NASDAQ:EVOP), Brooge Energy Limited (NASDAQ:BROG), GMS Inc. (NYSE:GMS), and US Ecology Inc. (NASDAQ:ECOL). This group of stocks' market caps resemble TRS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESPR,17,222235,-2 BSIG,25,374125,3 PGTI,11,79133,0 EVOP,15,34698,1 BROG,6,35733,0 GMS,18,99280,1 ECOL,12,25411,-4 Average,14.9,124374,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $71 million in TRS's case. BrightSphere Investment Group Inc (NYSE:BSIG) is the most popular stock in this table. On the other hand Brooge Energy Limited (NASDAQ:BROG) is the least popular one with only 6 bullish hedge fund positions. TriMas Corp (NASDAQ:TRS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TRS is 45.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on TRS as the stock returned 33% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.