Were Hedge Funds Right About Ditching Transportadora de Gas del Sur SA (TGS)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Transportadora de Gas del Sur SA (NYSE:TGS).

Is Transportadora de Gas del Sur SA (NYSE:TGS) a marvelous investment now? The best stock pickers are getting less bullish. The number of bullish hedge fund bets went down by 3 lately. Our calculations also showed that TGS isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 view the fresh hedge fund action regarding Transportadora de Gas del Sur SA (NYSE:TGS).

How have hedgies been trading Transportadora de Gas del Sur SA (NYSE:TGS)?

Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TGS over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

James Dondero Highland Capital Management

James Dondero of Highland Capital Management

Among these funds, Oaktree Capital Management held the most valuable stake in Transportadora de Gas del Sur SA (NYSE:TGS), which was worth $15.1 million at the end of the second quarter. On the second spot was Millennium Management which amassed $5.7 million worth of shares. Moreover, Highland Capital Management, Athanor Capital, and Renaissance Technologies were also bullish on Transportadora de Gas del Sur SA (NYSE:TGS), allocating a large percentage of their portfolios to this stock.

Because Transportadora de Gas del Sur SA (NYSE:TGS) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers who sold off their full holdings last quarter. At the top of the heap, Zach Schreiber’s Point State Capital cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $3.4 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund said goodbye to about $2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Transportadora de Gas del Sur SA (NYSE:TGS) but similarly valued. We will take a look at Qudian Inc. (NYSE:QD), Appian Corporation (NASDAQ:APPN), Atlantica Yield plc (NASDAQ:AY), and Welbilt, Inc. (NYSE:WBT). This group of stocks’ market values match TGS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QD 22 170536 4
APPN 12 335900 -7
AY 18 203361 -3
WBT 25 850267 -2
Average 19.25 390016 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $390 million. That figure was $28 million in TGS’s case. Welbilt, Inc. (NYSE:WBT) is the most popular stock in this table. On the other hand Appian Corporation (NASDAQ:APPN) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Transportadora de Gas del Sur SA (NYSE:TGS) is even less popular than APPN. Hedge funds dodged a bullet by taking a bearish stance towards TGS. 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 TGS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TGS investors were disappointed as the stock returned -41.3% 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.