Here’s What Hedge Funds Think About TransAlta Corporation (TAC)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of TransAlta Corporation (NYSE:TAC).

Is TransAlta Corporation (NYSE:TAC) a bargain? Hedge funds are in a bearish mood. The number of long hedge fund bets were cut by 2 in recent months. Our calculations also showed that TAC isn’t among the 30 most popular stocks among hedge funds (see the video below). TAC was in 9 hedge funds’ portfolios at the end of June. There were 11 hedge funds in our database with TAC positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the recent hedge fund action surrounding TransAlta Corporation (NYSE:TAC).

Hedge fund activity in TransAlta Corporation (NYSE:TAC)

At Q2’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the first quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in TAC 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.

Blair Levinsky of Waratah Capital Advisors

More specifically, Arrowstreet Capital was the largest shareholder of TransAlta Corporation (NYSE:TAC), with a stake worth $13.6 million reported as of the end of March. Trailing Arrowstreet Capital was Renaissance Technologies, which amassed a stake valued at $12.1 million. Citadel Investment Group, Two Sigma Advisors, and Waratah Capital Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that TransAlta Corporation (NYSE:TAC) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers who sold off their entire stakes by the end of the second quarter. Interestingly, Andrew Weiss’s Weiss Asset Management dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $2.2 million in stock, and Jerome L. Simon’s Lonestar Capital Management was right behind this move, as the fund sold off about $1.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as TransAlta Corporation (NYSE:TAC) but similarly valued. We will take a look at Portola Pharmaceuticals Inc (NASDAQ:PTLA), PennyMac Financial Services Inc (NYSE:PFSI), SJW Group (NYSE:SJW), and Deluxe Corporation (NYSE:DLX). This group of stocks’ market valuations are similar to TAC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PTLA 18 263264 -2
PFSI 16 104584 0
SJW 15 168186 0
DLX 19 126428 -2
Average 17 165616 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $30 million in TAC’s case. Deluxe Corporation (NYSE:DLX) is the most popular stock in this table. On the other hand SJW Group (NYSE:SJW) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks TransAlta Corporation (NYSE:TAC) is even less popular than SJW. Hedge funds dodged a bullet by taking a bearish stance towards TAC. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TAC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TAC investors were disappointed as the stock returned 0.5% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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