Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Triumph Group Inc (NYSE:TGI).
Is Triumph Group Inc (NYSE:TGI) a healthy stock for your portfolio? Investors who are in the know were selling. The number of bullish hedge fund positions dropped by 1 in recent months. Triumph Group Inc (NYSE:TGI) was in 13 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 26. Our calculations also showed that TGI 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 14 hedge funds in our database with TGI holdings at the end of June.
Video: 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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Chuck Royce
Chuck Royce of Royce & Associates
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. Keeping this in mind let's check out the key hedge fund action encompassing Triumph Group Inc (NYSE:TGI).
Do Hedge Funds Think TGI Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in TGI over the last 21 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Maple Rock Capital held the most valuable stake in Triumph Group Inc (NYSE:TGI), which was worth $16.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $9 million worth of shares. Arrowstreet Capital, D E Shaw, and Royce & Associates 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 Maple Rock Capital allocated the biggest weight to Triumph Group Inc (NYSE:TGI), around 3.03% of its 13F portfolio. Juniper Investment Company is also relatively very bullish on the stock, dishing out 1.14 percent of its 13F equity portfolio to TGI.
Since Triumph Group Inc (NYSE:TGI) has experienced a decline in interest from the smart money, it's safe to say that there exists a select few money managers who sold off their positions entirely last quarter. Interestingly, Israel Englander's Millennium Management cut the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $1.5 million in stock. Cliff Asness's fund, AQR Capital Management, also cut its stock, about $0.5 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Triumph Group Inc (NYSE:TGI) but similarly valued. We will take a look at Kandi Technolgies Group Inc. (NASDAQ:KNDI), VSE Corporation (NASDAQ:VSEC), Pandion Therapeutics Inc. (NASDAQ:PAND), Urstadt Biddle Properties Inc. (NYSE:UBP), Viemed Healthcare, Inc. (NASDAQ:VMD), Caesarstone Ltd (NASDAQ:CSTE), and Revlon Inc (NYSE:REV). This group of stocks' market caps are closest to TGI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KNDI,1,310,-1 VSEC,3,2324,1 PAND,14,68560,14 UBP,3,700,2 VMD,14,22879,8 CSTE,6,12320,-1 REV,32,253557,-2 Average,10.4,51521,3 [/table]
As you can see these stocks had an average of 10.4 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $43 million in TGI's case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Kandi Technolgies Group Inc. (NASDAQ:KNDI) is the least popular one with only 1 bullish hedge fund positions. Triumph Group Inc (NYSE:TGI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TGI is 38.4. 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. Hedge funds were also right about betting on TGI as the stock returned 136.4% since the end of Q3 (through 12/8) 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.
