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Hedge Funds Have Never Been This Bullish On Transportadora de Gas del Sur SA (TGS)

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Transportadora de Gas del Sur SA (NYSE:TGS).

Transportadora de Gas del Sur SA (NYSE:TGS) investors should pay attention to an increase in hedge fund interest lately. TGS was in 12 hedge funds’ portfolios at the end of the first quarter of 2019. There were 8 hedge funds in our database with TGS positions at the end of the previous quarter. Our calculations also showed that TGS isn’t among the 30 most popular stocks among hedge funds.

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.

James Dondero Highland Capital Management

James Dondero of Highland Capital Management

Let’s take a look at the latest hedge fund action surrounding Transportadora de Gas del Sur SA (NYSE:TGS).

What have hedge funds been doing with Transportadora de Gas del Sur SA (NYSE:TGS)?

Heading into the second quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TGS over the last 15 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

TGS_june2019

Among these funds, Oaktree Capital Management held the most valuable stake in Transportadora de Gas del Sur SA (NYSE:TGS), which was worth $9.1 million at the end of the first quarter. On the second spot was Millennium Management which amassed $8.8 million worth of shares. Moreover, Highland Capital Management, Point State Capital, and Athanor Capital were also bullish on Transportadora de Gas del Sur SA (NYSE:TGS), allocating a large percentage of their portfolios to this stock.

Now, some big names were breaking ground themselves. ExodusPoint Capital, managed by Michael Gelband, assembled the largest position in Transportadora de Gas del Sur SA (NYSE:TGS). ExodusPoint Capital had $1.6 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also initiated a $0.5 million position during the quarter. The following funds were also among the new TGS investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Jonathan Soros’s JS Capital.

Let’s also examine hedge fund activity in other stocks similar to Transportadora de Gas del Sur SA (NYSE:TGS). We will take a look at Uniti Group Inc. (NASDAQ:UNIT), Amkor Technology, Inc. (NASDAQ:AMKR), Ladder Capital Corp (NYSE:LADR), and Cision Ltd. (NYSE:CISN). This group of stocks’ market caps are closest to TGS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UNIT 21 249203 7
AMKR 25 88588 1
LADR 15 53995 1
CISN 17 51296 0
Average 19.5 110771 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $33 million in TGS’s case. Amkor Technology, Inc. (NASDAQ:AMKR) is the most popular stock in this table. On the other hand Ladder Capital Corp (NYSE:LADR) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Transportadora de Gas del Sur SA (NYSE:TGS) is even less popular than LADR. Hedge funds clearly dropped the ball on TGS 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on TGS as the stock returned 23.1% during the same period and outperformed the market by an even larger margin.

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

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