Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Tronox Holdings Plc (NYSE:TROX) changed recently.
Is TROX a good stock to buy now? Investors who are in the know were becoming less hopeful. The number of bullish hedge fund bets decreased by 2 recently. Tronox Holdings Plc (NYSE:TROX) was in 19 hedge funds' portfolios at the end of September. The all time high for this statistic is 33. Our calculations also showed that TROX 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 21 hedge funds in our database with TROX 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 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.
Jonathan Barrett Luminus Management
Jonathan Barrett of Luminus Management
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 we're going to check out the recent hedge fund action surrounding Tronox Holdings Plc (NYSE:TROX).
Do Hedge Funds Think TROX Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2020. On the other hand, there were a total of 20 hedge funds with a bullish position in TROX a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Maple Rock Capital was the largest shareholder of Tronox Holdings Plc (NYSE:TROX), with a stake worth $21.5 million reported as of the end of September. Trailing Maple Rock Capital was Private Capital Management, which amassed a stake valued at $18.2 million. Luminus Management, Millennium Management, and Marshall Wace LLP 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 4.16% of its 13F portfolio. Maple Rock Capital is also relatively very bullish on the stock, designating 3.93 percent of its 13F equity portfolio to TROX.
Seeing as Tronox Holdings Plc (NYSE:TROX) has experienced falling interest from hedge fund managers, it's safe to say that there were a few funds who sold off their entire stakes last quarter. Interestingly, Louis Bacon's Moore Global Investments said goodbye to the largest stake of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $3.4 million in stock. Greg Eisner's fund, Engineers Gate Manager, also said goodbye to its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Tronox Holdings Plc (NYSE:TROX) but similarly valued. We will take a look at Enerpac Tool Group Corp. (NYSE:EPAC), Radware Ltd. (NASDAQ:RDWR), Plains GP Holdings LP (NASDAQ:PAGP), Domo Inc. (NASDAQ:DOMO), Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), U.S. Physical Therapy, Inc. (NYSE:USPH), and Tennant Company (NYSE:TNC). All of these stocks' market caps resemble TROX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EPAC,11,83786,-7 RDWR,10,256298,-3 PAGP,18,74928,-1 DOMO,24,252079,3 ARQT,9,526942,-1 USPH,10,38330,1 TNC,15,77755,5 Average,13.9,187160,-0.4 [/table]
As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $187 million. That figure was $70 million in TROX's case. Domo Inc. (NASDAQ:DOMO) is the most popular stock in this table. On the other hand Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) is the least popular one with only 9 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. Our overall hedge fund sentiment score for TROX is 53.6. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on TROX as the stock returned 65.8% since the end of Q3 (through 12/14) 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.
