We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards The Toro Company (NYSE:TTC).
Is TTC a good stock to buy? The best stock pickers were in a bullish mood. The number of long hedge fund bets improved by 1 recently. The Toro Company (NYSE:TTC) was in 32 hedge funds' portfolios at the end of September. The all time high for this statistic is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TTC 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). There were 31 hedge funds in our database with TTC positions at the end of the second 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now we're going to take a peek at the latest hedge fund action surrounding The Toro Company (NYSE:TTC).
Do Hedge Funds Think TTC Is A Good Stock To Buy Now?
At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TTC over the last 21 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the largest position in The Toro Company (NYSE:TTC). Select Equity Group has a $529.7 million position in the stock, comprising 2.6% of its 13F portfolio. The second largest stake is held by Ian Simm of Impax Asset Management, with a $137 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish comprise Ken Fisher's Fisher Asset Management, Richard Chilton's Chilton Investment Company and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to The Toro Company (NYSE:TTC), around 2.6% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, setting aside 1.91 percent of its 13F equity portfolio to TTC.
As aggregate interest increased, specific money managers were leading the bulls' herd. Renaissance Technologies, initiated the most outsized position in The Toro Company (NYSE:TTC). Renaissance Technologies had $21.6 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider's SG Capital Management also initiated a $6.4 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel's Two Sigma Advisors, Benjamin A. Smith's Laurion Capital Management, and Karim Abbadi and Edward McBride's Centiva Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Toro Company (NYSE:TTC) but similarly valued. We will take a look at American Homes 4 Rent (NYSE:AMH), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), Watsco Inc (NYSE:WSO), ON Semiconductor Corporation (NASDAQ:ON), L Brands Inc (NYSE:LB), The Western Union Company (NYSE:WU), and Imperial Oil Limited (NYSE:IMO). This group of stocks' market values match TTC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMH,24,294356,1 NBIX,38,1005157,0 WSO,29,269460,8 ON,29,360766,-3 LB,45,3367576,3 WU,36,669370,2 IMO,11,28115,0 Average,30.3,856400,1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.3 hedge funds with bullish positions and the average amount invested in these stocks was $856 million. That figure was $960 million in TTC's case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 11 bullish hedge fund positions. The Toro Company (NYSE:TTC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TTC is 66.9. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on TTC as the stock returned 12.9% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.