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Hedge Funds Aren’t Crazy About Tennant Company (TNC) Anymore

We at Insider Monkey have gone over 730 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of June 28th. In this article, we look at what those funds think of Tennant Company (NYSE:TNC) based on that data.

Tennant Company (NYSE:TNC) was in 6 hedge funds’ portfolios at the end of the second quarter of 2019. TNC has experienced a decrease in activity from the world’s largest hedge funds in recent months. There were 15 hedge funds in our database with TNC holdings at the end of the previous quarter. Our calculations also showed that TNC 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

TNC_oct2019

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 take a peek at the key hedge fund action regarding Tennant Company (NYSE:TNC).

Hedge fund activity in Tennant Company (NYSE:TNC)

At the end of the second quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -60% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in TNC over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Mario Gabelli with cereal box

According to Insider Monkey’s hedge fund database, Royce & Associates, managed by Chuck Royce, holds the biggest position in Tennant Company (NYSE:TNC). Royce & Associates has a $37.2 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by GAMCO Investors, led by Mario Gabelli, holding a $21.1 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other peers that are bullish include Ken Griffin’s Citadel Investment Group, Renaissance Technologies and Peter Muller’s PDT Partners.

Due to the fact that Tennant Company (NYSE:TNC) has experienced falling interest from hedge fund managers, logic holds that there was a specific group of funds that elected to cut their entire stakes by the end of the second quarter. It’s worth mentioning that Israel Englander’s Millennium Management cut the largest position of all the hedgies watched by Insider Monkey, worth an estimated $4.9 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also said goodbye to its stock, about $2.9 million worth. These transactions are interesting, as total hedge fund interest fell by 9 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Tennant Company (NYSE:TNC). We will take a look at Big Lots, Inc. (NYSE:BIG), Independence Realty Trust Inc (NYSE:IRT), Encore Capital Group, Inc. (NASDAQ:ECPG), and Republic Bancorp, Inc. (NASDAQ:RBCAA). This group of stocks’ market caps match TNC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BIG 20 117046 0
IRT 8 65969 -3
ECPG 8 63507 -6
RBCAA 6 17134 -1
Average 10.5 65914 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $65 million in TNC’s case. Big Lots, Inc. (NYSE:BIG) is the most popular stock in this table. On the other hand Republic Bancorp, Inc. (NASDAQ:RBCAA) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Tennant Company (NYSE:TNC) is even less popular than RBCAA. Hedge funds clearly dropped the ball on TNC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 TNC as the stock returned 15.9% during the third quarter and outperformed the market by an even larger margin.

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

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