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 Tootsie Roll Industries, Inc. (NYSE:TR) and determine whether hedge funds skillfully traded this stock.
Is Tootsie Roll Industries, Inc. (NYSE:TR) a sound investment today? Money managers were betting on the stock. The number of bullish hedge fund bets rose by 5 recently. Tootsie Roll Industries, Inc. (NYSE:TR) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TR 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.
According to most traders, hedge funds are assumed to be worthless, outdated investment tools of yesteryear. While there are more than 8000 funds in operation at the moment, We hone in on the masters of this club, about 850 funds. It is estimated that this group of investors oversee the lion’s share of the smart money’s total capital, and by paying attention to their unrivaled equity investments, Insider Monkey has identified various investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced 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 .
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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. 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 to get excerpts of these letters in your inbox. Now we’re going to review the recent hedge fund action encompassing Tootsie Roll Industries, Inc. (NYSE:TR).
Hedge fund activity in Tootsie Roll Industries, Inc. (NYSE:TR)
Heading into the third quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TR over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, GAMCO Investors was the largest shareholder of Tootsie Roll Industries, Inc. (NYSE:TR), with a stake worth $28.2 million reported as of the end of September. Trailing GAMCO Investors was Renaissance Technologies, which amassed a stake valued at $21.8 million. Royce & Associates, Winton Capital Management, 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 Wallace Capital Management allocated the biggest weight to Tootsie Roll Industries, Inc. (NYSE:TR), around 0.47% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 0.39 percent of its 13F equity portfolio to TR.
Consequently, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Tootsie Roll Industries, Inc. (NYSE:TR). Arrowstreet Capital had $2.5 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $0.5 million investment in the stock during the quarter. The other funds with brand new TR positions are D. E. Shaw’s D E Shaw, Joel Greenblatt’s Gotham Asset Management, and Donald Sussman’s Paloma Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Tootsie Roll Industries, Inc. (NYSE:TR) but similarly valued. We will take a look at Opko Health Inc. (NASDAQ:OPK), Telephone & Data Systems, Inc. (NYSE:TDS), Sterling Bancorp (NYSE:STL), Old National Bancorp (NASDAQ:ONB), TC Pipelines, LP (NYSE:TCP), Sunoco LP (NYSE:SUN), and American Equity Investment Life Holding Company (NYSE:AEL). This group of stocks’ market valuations resemble TR’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $82 million in TR’s case. Sterling Bancorp (NYSE:STL) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 2 bullish hedge fund positions. Tootsie Roll Industries, Inc. (NYSE:TR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TR is 74. 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. 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 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately TR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TR were disappointed as the stock returned -9.8% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.