A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by nearly 7 percentage points during the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of Teekay Offshore Partners L.P. (NYSE:TOO) during the quarter.
Teekay Offshore Partners L.P. (NYSE:TOO) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. TOO was in 8 hedge funds’ portfolios at the end of December. There were 7 hedge funds in our database with TOO positions at the end of the previous quarter. Our calculations also showed that too isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 32 percentage points since May 2014 through March 12, 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.
Let’s check out the fresh hedge fund action encompassing Teekay Offshore Partners L.P. (NYSE:TOO).
How have hedgies been trading Teekay Offshore Partners L.P. (NYSE:TOO)?
At Q4’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards TOO over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Luminus Management was the largest shareholder of Teekay Offshore Partners L.P. (NYSE:TOO), with a stake worth $11.5 million reported as of the end of December. Trailing Luminus Management was Aquamarine Capital Management, which amassed a stake valued at $1.2 million. Renaissance Technologies, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key money managers have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, created the biggest position in Teekay Offshore Partners L.P. (NYSE:TOO). Two Sigma Advisors had $0 million invested in the company at the end of the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Teekay Offshore Partners L.P. (NYSE:TOO) but similarly valued. We will take a look at Mechel PAO (NYSE:MTL), Sinovac Biotech Ltd. (NASDAQ:SVA), Just Energy Group, Inc. (NYSE:JE), and Star Group, L.P. (NYSE:SGU). This group of stocks’ market caps resemble TOO’s market cap.
|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 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $14 million in TOO’s case. Just Energy Group, Inc. (NYSE:JE) is the most popular stock in this table. On the other hand Mechel PAO (NYSE:MTL) is the least popular one with only 4 bullish hedge fund positions. Teekay Offshore Partners L.P. (NYSE:TOO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately TOO wasn’t nearly as popular as these 15 stock and hedge funds that were betting on TOO were disappointed as the stock returned 15.7% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.