At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Trustmark Corp (NASDAQ:TRMK) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Trustmark Corp (NASDAQ:TRMK) undervalued? Money managers were turning less bullish. The number of long hedge fund bets dropped by 3 lately. Our calculations also showed that TRMK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). TRMK was in 13 hedge funds’ portfolios at the end of March. There were 16 hedge funds in our database with TRMK positions at the end of the previous quarter.
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 states that pay the most federal taxes to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the recent hedge fund action regarding Trustmark Corp (NASDAQ:TRMK).
How have hedgies been trading Trustmark Corp (NASDAQ:TRMK)?
At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in TRMK a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Trustmark Corp (NASDAQ:TRMK), which was worth $2.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $2.3 million worth of shares. AlphaCrest Capital Management, Winton Capital Management, and Holocene Advisors 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 AlphaCrest Capital Management allocated the biggest weight to Trustmark Corp (NASDAQ:TRMK), around 0.14% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to TRMK.
Seeing as Trustmark Corp (NASDAQ:TRMK) has faced falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedge funds who were dropping their entire stakes by the end of the first quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest stake of the 750 funds followed by Insider Monkey, comprising about $1.6 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $1.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 3 funds by the end of the first quarter.
Let’s now review hedge fund activity in other stocks similar to Trustmark Corp (NASDAQ:TRMK). These stocks are Onto Innovation Inc. (NYSE:ONTO), Moelis & Company (NYSE:MC), Penn National Gaming, Inc (NASDAQ:PENN), and Cabot Corporation (NYSE:CBT). This group of stocks’ market valuations are similar to TRMK’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 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $12 million in TRMK’s case. Cabot Corporation (NYSE:CBT) is the most popular stock in this table. On the other hand Moelis & Company (NYSE:MC) is the least popular one with only 10 bullish hedge fund positions. Trustmark Corp (NASDAQ:TRMK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately TRMK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TRMK investors were disappointed as the stock returned 2.1% during the second quarter 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.