Hedge Funds Are Dipping Their Toes Back Into The Timken Company (TKR)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards The Timken Company (NYSE:TKR) and determine whether hedge funds skillfully traded this stock.

The Timken Company (NYSE:TKR) was in 31 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 40. TKR shareholders have witnessed an increase in hedge fund sentiment recently. There were 30 hedge funds in our database with TKR holdings at the end of March. Our calculations also showed that TKR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most traders, hedge funds are perceived as unimportant, outdated financial tools of yesteryear. While there are greater than 8000 funds trading at the moment, Our researchers choose to focus on the bigwigs of this group, approximately 850 funds. Most estimates calculate that this group of people preside over most of the hedge fund industry’s total asset base, and by paying attention to their first-class picks, Insider Monkey has discovered several investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Steven Cohen of Point72 Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Keeping this in mind we’re going to take a gander at the latest hedge fund action regarding The Timken Company (NYSE:TKR).

How have hedgies been trading The Timken Company (NYSE:TKR)?

Heading into the third quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in TKR a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Adage Capital Management was the largest shareholder of The Timken Company (NYSE:TKR), with a stake worth $120.7 million reported as of the end of September. Trailing Adage Capital Management was AQR Capital Management, which amassed a stake valued at $47.9 million. Arrowstreet Capital, Balyasny Asset Management, and Scopus Asset 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 Diametric Capital allocated the biggest weight to The Timken Company (NYSE:TKR), around 1.24% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, setting aside 0.65 percent of its 13F equity portfolio to TKR.

As aggregate interest increased, key money managers were breaking ground themselves. Columbus Circle Investors, managed by Principal Global Investors, initiated the most valuable position in The Timken Company (NYSE:TKR). Columbus Circle Investors had $9.5 million invested in the company at the end of the quarter. Chuck Royce’s Royce & Associates also initiated a $7.7 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Gregg Moskowitz’s Interval Partners, and Donald Sussman’s Paloma Partners.

Let’s go over hedge fund activity in other stocks similar to The Timken Company (NYSE:TKR). We will take a look at Strategic Education Inc (NASDAQ:STRA), PVH Corp (NYSE:PVH), Coty Inc (NYSE:COTY), Seaboard Corporation (NYSE:SEB), Semtech Corporation (NASDAQ:SMTC), Change Healthcare Inc. (NASDAQ:CHNG), and NeoGenomics, Inc. (NASDAQ:NEO). This group of stocks’ market valuations are closest to TKR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STRA 21 274084 8
PVH 28 474978 10
COTY 26 135189 -7
SEB 14 119011 -1
SMTC 25 157701 8
CHNG 47 1112137 0
NEO 19 65308 8
Average 25.7 334058 3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.7 hedge funds with bullish positions and the average amount invested in these stocks was $334 million. That figure was $302 million in TKR’s case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Seaboard Corporation (NYSE:SEB) is the least popular one with only 14 bullish hedge fund positions. The Timken Company (NYSE:TKR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TKR is 55. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on TKR as the stock returned 25.6% during Q3 (through September 14th) 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.