Will Turquoise Hill Resources Ltd (TRQ) Burn These Hedge Funds?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Turquoise Hill Resources Ltd (NYSE:TRQ) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Turquoise Hill Resources Ltd (NYSE:TRQ) investors should pay attention to an increase in activity from the world’s largest hedge funds lately. TRQ was in 20 hedge funds’ portfolios at the end of June. There were 17 hedge funds in our database with TRQ holdings at the end of the previous quarter. Our calculations also showed that TRQ isn’t among the 30 most popular stocks among hedge funds (view 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Matthew Halbower Pentwater Capital

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 key hedge fund action surrounding Turquoise Hill Resources Ltd (NYSE:TRQ).

Hedge fund activity in Turquoise Hill Resources Ltd (NYSE:TRQ)

At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in TRQ 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.

No of Hedge Funds with TRQ Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, SailingStone Capital Partners, managed by MacKenzie B. Davis and Kenneth L. Settles Jr, holds the largest position in Turquoise Hill Resources Ltd (NYSE:TRQ). SailingStone Capital Partners has a $257.5 million position in the stock, comprising 26.5% of its 13F portfolio. The second most bullish fund manager is Pentwater Capital Management, led by Matthew Halbower, holding a $225.6 million position; 2.4% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism contain David Iben’s Kopernik Global Investors, Ken Heebner’s Capital Growth Management and Jonathan Barrett and Paul Segal’s Luminus Management.

Now, key money managers have jumped into Turquoise Hill Resources Ltd (NYSE:TRQ) headfirst. Moore Global Investments, managed by Louis Bacon, created the biggest position in Turquoise Hill Resources Ltd (NYSE:TRQ). Moore Global Investments had $1.2 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also initiated a $1 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group and Noam Gottesman’s GLG Partners.

Let’s now review hedge fund activity in other stocks similar to Turquoise Hill Resources Ltd (NYSE:TRQ). These stocks are Guangshen Railway Company Limited (NYSE:GSH), PROS Holdings, Inc. (NYSE:PRO), 2U Inc (NASDAQ:TWOU), and California Water Service Group (NYSE:CWT). All of these stocks’ market caps match TRQ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GSH 1 3864 0
PRO 16 223208 -3
TWOU 14 71032 -5
CWT 12 32352 4
Average 10.75 82614 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $667 million in TRQ’s case. PROS Holdings, Inc. (NYSE:PRO) is the most popular stock in this table. On the other hand Guangshen Railway Company Limited (NYSE:GSH) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Turquoise Hill Resources Ltd (NYSE:TRQ) is more popular among hedge funds. 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. 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 -61.3% 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 in Q3.

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