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Were Hedge Funds Right About Tronox Limited (TROX)?

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Reymerlyn Martin
·6 min read
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Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Tronox Holdings plc (NYSE:TROX).

Is Tronox Holdings plc (NYSE:TROX) a buy, sell, or hold? Investors who are in the know are becoming more confident. The number of bullish hedge fund positions moved up by 3 recently. Our calculations also showed that TROX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). TROX was in 23 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with TROX holdings at the end of the previous quarter.

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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_728376" align="aligncenter" width="400"]

Jonathan Barrett Luminus Management
Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager's coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to check out the new hedge fund action surrounding Tronox Holdings plc (NYSE:TROX).

What have hedge funds been doing with Tronox Holdings plc (NYSE:TROX)?

At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the third quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in TROX a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Luminus Management held the most valuable stake in Tronox Holdings plc (NYSE:TROX), which was worth $37.7 million at the end of the third quarter. On the second spot was Private Capital Management which amassed $33.7 million worth of shares. Anchorage Advisors, Samlyn Capital, 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 Private Capital Management allocated the biggest weight to Tronox Holdings plc (NYSE:TROX), around 5.84% of its 13F portfolio. Appian Way Asset Management is also relatively very bullish on the stock, setting aside 3.25 percent of its 13F equity portfolio to TROX.

As one would reasonably expect, key money managers were leading the bulls' herd. Appian Way Asset Management, managed by Andrew Byington, assembled the biggest position in Tronox Holdings plc (NYSE:TROX). Appian Way Asset Management had $6.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $5.1 million investment in the stock during the quarter. The following funds were also among the new TROX investors: Javier Velazquez's Albar Capital, Robert Vincent McHugh's Jade Capital Advisors, and Jonathan Soros's JS Capital.

Let's now take a look at hedge fund activity in other stocks similar to Tronox Holdings plc (NYSE:TROX). We will take a look at Cardlytics, Inc. (NASDAQ:CDLX), Avanos Medical, Inc. (NYSE:AVNS), Chesapeake Energy Corporation (NYSE:CHK), and PDC Energy Inc (NASDAQ:PDCE). This group of stocks' market values match TROX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CDLX,26,438746,7 AVNS,8,151007,-6 CHK,19,42424,2 PDCE,32,261539,6 Average,21.25,223429,2.25 [/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 $223 million. That figure was $138 million in TROX's case. PDC Energy Inc (NASDAQ:PDCE) is the most popular stock in this table. On the other hand Avanos Medical, Inc. (NYSE:AVNS) is the least popular one with only 8 bullish hedge fund positions. Tronox Holdings plc (NYSE:TROX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately TROX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TROX were disappointed as the stock returned -57.2% during the same time period 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 this year.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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