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Hedge Funds Souring On Tata Motors Limited (TTM)

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 Tata Motors Limited (NYSE:TTM) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Tata Motors Limited (NYSE:TTM) was in 10 hedge funds’ portfolios at the end of March. TTM shareholders have witnessed a decrease in enthusiasm from smart money lately. There were 11 hedge funds in our database with TTM holdings at the end of the previous quarter. Our calculations also showed that TTM 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).

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

In the financial world there are dozens of formulas market participants can use to size up publicly traded companies. Two of the most innovative formulas are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the market by a very impressive margin (see the details here).

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Keeping this in mind let’s analyze the key hedge fund action encompassing Tata Motors Limited (NYSE:TTM).

How are hedge funds trading Tata Motors Limited (NYSE:TTM)?

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in TTM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Tata Motors Limited (NYSE:TTM) was held by Renaissance Technologies, which reported holding $34.8 million worth of stock at the end of September. It was followed by LMR Partners with a $18.2 million position. Other investors bullish on the company included GLG Partners, AQR Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to Tata Motors Limited (NYSE:TTM), around 1.52% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to TTM.

Since Tata Motors Limited (NYSE:TTM) has faced bearish sentiment from the smart money, logic holds that there is a sect of fund managers that decided to sell off their entire stakes heading into Q4. Intriguingly, Simon Sadler’s Segantii Capital cut the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $9.4 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund said goodbye to about $1.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Tata Motors Limited (NYSE:TTM). These stocks are Aluminum Corp. of China Limited (NYSE:ACH), Acuity Brands, Inc. (NYSE:AYI), Companhia Brasileira de Distrib. (NYSE:CBD), and Qualys Inc (NASDAQ:QLYS). This group of stocks’ market values are closest to TTM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACH 2 2417 -1
AYI 31 498648 2
CBD 5 7159 -4
QLYS 17 115965 -12
Average 13.75 156047 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $61 million in TTM’s case. Acuity Brands, Inc. (NYSE:AYI) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 2 bullish hedge fund positions. Tata Motors Limited (NYSE:TTM) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on TTM as the stock returned 39.2% during the second quarter and outperformed the market by an even larger margin.

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