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Did Hedge Funds Drop The Ball On Tower International Inc (TOWR) ?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Tower International Inc (NYSE:TOWR) from the perspective of those elite funds.

Tower International Inc (NYSE:TOWR) investors should pay attention to a decrease in hedge fund sentiment in recent months. TOWR was in 9 hedge funds’ portfolios at the end of June. There were 13 hedge funds in our database with TOWR holdings at the end of the previous quarter. Our calculations also showed that TOWR isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the fresh hedge fund action regarding Tower International Inc (NYSE:TOWR).

How are hedge funds trading Tower International Inc (NYSE:TOWR)?

At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the first quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in TOWR a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with TOWR Positions

Among these funds, Royce & Associates held the most valuable stake in Tower International Inc (NYSE:TOWR), which was worth $14.1 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $5.8 million worth of shares. Moreover, D E Shaw, AQR Capital Management, and Arrowstreet Capital were also bullish on Tower International Inc (NYSE:TOWR), allocating a large percentage of their portfolios to this stock.

Since Tower International Inc (NYSE:TOWR) has experienced falling interest from the smart money, logic holds that there was a specific group of hedgies who sold off their full holdings by the end of the second quarter. Interestingly, Israel Englander’s Millennium Management dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $4.8 million in stock. Noam Gottesman’s fund, GLG Partners, also sold off its stock, about $2.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Tower International Inc (NYSE:TOWR). We will take a look at Golden Entertainment Inc (NASDAQ:GDEN), Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX), Vera Bradley, Inc. (NASDAQ:VRA), and Brightcove Inc (NASDAQ:BCOV). This group of stocks’ market valuations resemble TOWR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GDEN 11 79189 -1
ELOX 2 3954 2
VRA 16 54301 -2
BCOV 18 142351 3
Average 11.75 69949 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $33 million in TOWR’s case. Brightcove Inc (NASDAQ:BCOV) is the most popular stock in this table. On the other hand Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX) is the least popular one with only 2 bullish hedge fund positions. Tower International Inc (NYSE:TOWR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on TOWR as the stock returned 59% during the same time frame and outperformed the market by an even larger margin.

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

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