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Were Hedge Funds Right About Flocking Into The Toro Company (TTC) ?

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Is The Toro Company (NYSE:TTC) a sound investment now? Investors who are in the know are turning bullish. The number of long hedge fund positions improved by 8 in recent months. Our calculations also showed that TTC isn’t among the 30 most popular stocks among hedge funds (view 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.

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 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 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.

Curtis Schenker

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We’re going to take a peek at the latest hedge fund action regarding The Toro Company (NYSE:TTC).

Hedge fund activity in The Toro Company (NYSE:TTC)

At Q2’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TTC over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TTC_oct2019

Among these funds, Select Equity Group held the most valuable stake in The Toro Company (NYSE:TTC), which was worth $297.2 million at the end of the second quarter. On the second spot was Impax Asset Management which amassed $107.8 million worth of shares. Moreover, Fisher Asset Management, GLG Partners, and Chilton Investment Company were also bullish on The Toro Company (NYSE:TTC), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, specific money managers have jumped into The Toro Company (NYSE:TTC) headfirst. Chilton Investment Company, managed by Richard Chilton, created the most valuable position in The Toro Company (NYSE:TTC). Chilton Investment Company had $22.9 million invested in the company at the end of the quarter. Curtis Schenker and Craig Effron’s Scoggin also initiated a $1 million position during the quarter. The other funds with new positions in the stock are Richard Driehaus’s Driehaus Capital, Michael Gelband’s ExodusPoint Capital, and Israel Englander’s Millennium Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Toro Company (NYSE:TTC) but similarly valued. We will take a look at Alteryx, Inc. (NYSE:AYX), Gardner Denver Holdings, Inc. (NYSE:GDI), LINE Corporation (NYSE:LN), and Flowserve Corporation (NYSE:FLS). This group of stocks’ market valuations resemble TTC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AYX 38 1209758 7
GDI 24 293865 1
LN 9 46156 4
FLS 26 343957 6
Average 24.25 473434 4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $473 million. That figure was $621 million in TTC’s case. Alteryx, Inc. (NYSE:AYX) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 9 bullish hedge fund positions. The Toro Company (NYSE:TTC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on TTC as the stock returned 9.9% during the same time frame and outperformed the market by an even larger margin.

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

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