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Is Turquoise Hill Resources Ltd (TRQ) Going To Burn These Hedge Funds ?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Turquoise Hill Resources Ltd (NYSE:TRQ).

Turquoise Hill Resources Ltd (NYSE:TRQ) shareholders have witnessed a decrease in support from the world’s most elite money managers recently. TRQ was in 19 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with TRQ positions at the end of the previous quarter. Our calculations also showed that TRQ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gifford Combs - Dalton Investments

Gifford Combs of Dalton Investments

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the latest hedge fund action encompassing Turquoise Hill Resources Ltd (NYSE:TRQ).

What does smart money think about Turquoise Hill Resources Ltd (NYSE:TRQ)?

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in TRQ a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

More specifically, Pentwater Capital Management was the largest shareholder of Turquoise Hill Resources Ltd (NYSE:TRQ), with a stake worth $84.3 million reported as of the end of September. Trailing Pentwater Capital Management was SailingStone Capital Partners, which amassed a stake valued at $63.1 million. Kopernik Global Investors, Luminus Management, and Dalton Investments were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SailingStone Capital Partners allocated the biggest weight to Turquoise Hill Resources Ltd (NYSE:TRQ), around 16.04% of its 13F portfolio. Kopernik Global Investors is also relatively very bullish on the stock, dishing out 6.13 percent of its 13F equity portfolio to TRQ.

Since Turquoise Hill Resources Ltd (NYSE:TRQ) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedgies who sold off their full holdings last quarter. Interestingly, Ken Heebner’s Capital Growth Management cut the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $37.2 million in stock. Louis Bacon’s fund, Moore Global Investments, also sold off its stock, about $1.2 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Turquoise Hill Resources Ltd (NYSE:TRQ) but similarly valued. We will take a look at Big Lots, Inc. (NYSE:BIG), 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), Caleres Inc (NYSE:CAL), and Valaris plc (NYSE:VAL). This group of stocks’ market valuations are similar to TRQ’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BIG 21 82166 1
FLWS 20 64087 -1
CAL 15 75737 7
VAL 18 172771 -10
Average 18.5 98690 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $208 million in TRQ’s case. Big Lots, Inc. (NYSE:BIG) is the most popular stock in this table. On the other hand Caleres Inc (NYSE:CAL) is the least popular one with only 15 bullish hedge fund positions. Turquoise Hill Resources Ltd (NYSE:TRQ) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TRQ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TRQ were disappointed as the stock returned -4.2% during the fourth quarter (through the end of November) 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 this year.

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

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