Were Hedge Funds Right About Flocking Into TreeHouse Foods Inc. (THS)?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze TreeHouse Foods Inc. (NYSE:THS).

Is TreeHouse Foods Inc. (NYSE:THS) an attractive investment now? Investors who are in the know are becoming more confident. The number of long hedge fund positions advanced by 1 recently. Our calculations also showed that THS isn’t among the 30 most popular stocks among hedge funds. THS was in 19 hedge funds’ portfolios at the end of December. There were 18 hedge funds in our database with THS holdings at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

John Levin of Levin Capital

We’re going to analyze the recent hedge fund action surrounding TreeHouse Foods Inc. (NYSE:THS).

Hedge fund activity in TreeHouse Foods Inc. (NYSE:THS)

At Q4’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in THS a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).


More specifically, Levin Capital Strategies was the largest shareholder of TreeHouse Foods Inc. (NYSE:THS), with a stake worth $167.1 million reported as of the end of September. Trailing Levin Capital Strategies was Hudson Executive Capital, which amassed a stake valued at $125.2 million. Renaissance Technologies, Fisher Asset Management, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, specific money managers have jumped into TreeHouse Foods Inc. (NYSE:THS) headfirst. Hudson Executive Capital, managed by Douglas Braunstein and James Woolery, initiated the most valuable position in TreeHouse Foods Inc. (NYSE:THS). Hudson Executive Capital had $125.2 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $1.7 million position during the quarter. The other funds with brand new THS positions are Minhua Zhang’s Weld Capital Management, Ronald Hua’s Qtron Investments, and Ryan Caldwell’s Chiron Investment Management.

Let’s go over hedge fund activity in other stocks similar to TreeHouse Foods Inc. (NYSE:THS). We will take a look at CVB Financial Corp. (NASDAQ:CVBF), Home Bancshares Inc (NASDAQ:HOMB), Perspecta Inc. (NYSE:PRSP), and USANA Health Sciences, Inc. (NYSE:USNA). All of these stocks’ market caps are similar to THS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CVBF 9 28191 -2
HOMB 10 13503 -4
PRSP 37 535499 -5
USNA 19 360175 3
Average 18.75 234342 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $234 million. That figure was $460 million in THS’s case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 9 bullish hedge fund positions. TreeHouse Foods Inc. (NYSE:THS) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on THS as the stock returned 24.9% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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