Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Teck Resources Ltd (NYSE:TECK).
Teck Resources Ltd (NYSE:TECK) was in 30 hedge funds’ portfolios at the end of December. TECK investors should pay attention to an increase in support from the world’s most elite money managers in recent months. There were 20 hedge funds in our database with TECK positions at the end of the previous quarter. Our calculations also showed that TECK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 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 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 stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the fresh hedge fund action surrounding Teck Resources Ltd (NYSE:TECK).
Hedge fund activity in Teck Resources Ltd (NYSE:TECK)
At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the third quarter of 2019. On the other hand, there were a total of 26 hedge funds with a bullish position in TECK 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.
According to Insider Monkey’s hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in Teck Resources Ltd (NYSE:TECK). Arrowstreet Capital has a $198.1 million position in the stock, comprising 0.5% of its 13F portfolio. On Arrowstreet Capital’s heels is Robert Bishop of Impala Asset Management, with a $172.8 million position; the fund has 13.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish include Stephen Mildenhall’s Contrarius Investment Management, Renaissance Technologies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Teck Resources Ltd (NYSE:TECK), around 13.12% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, earmarking 4.59 percent of its 13F equity portfolio to TECK.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Moore Global Investments, managed by Louis Bacon, assembled the most valuable position in Teck Resources Ltd (NYSE:TECK). Moore Global Investments had $21.5 million invested in the company at the end of the quarter. Todd J. Kantor’s Encompass Capital Advisors also initiated a $14.3 million position during the quarter. The other funds with new positions in the stock are Ken Heebner’s Capital Growth Management, Robert Vincent McHugh’s Jade Capital Advisors, and Peter Muller’s PDT Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Teck Resources Ltd (NYSE:TECK) but similarly valued. These stocks are Vipshop Holdings Limited (NYSE:VIPS), Ceridian HCM Holding Inc. (NYSE:CDAY), Liberty Property Trust (NYSE:LPT), and Luckin Coffee Inc. (NASDAQ:LK). All of these stocks’ market caps resemble TECK’s market cap.
|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 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $923 million. That figure was $688 million in TECK’s case. Luckin Coffee Inc. (NASDAQ:LK) is the most popular stock in this table. On the other hand Vipshop Holdings Limited (NYSE:VIPS) is the least popular one with only 27 bullish hedge fund positions. Teck Resources Ltd (NYSE:TECK) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately TECK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TECK investors were disappointed as the stock returned -52.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.