In this article we will check out the progression of hedge fund sentiment towards Teck Resources Ltd (NYSE:TECK) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Teck Resources Ltd (NYSE:TECK) investors should pay attention to an increase in support from the world's most elite money managers in recent months. Teck Resources Ltd (NYSE:TECK) was in 40 hedge funds' portfolios at the end of June. The all time high for this statistic is 41. Our calculations also showed that TECK isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 S&P 500 ETFs by 79 percentage points since March 2017 (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.
Harold Levy of Iridian Asset Management
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Do Hedge Funds Think TECK Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TECK over the last 24 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Teck Resources Ltd (NYSE:TECK) was held by Contrarius Investment Management, which reported holding $170.1 million worth of stock at the end of June. It was followed by Iridian Asset Management with a $168.3 million position. Other investors bullish on the company included Antipodes Partners, Castle Hook Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Castle Hook Partners allocated the biggest weight to Teck Resources Ltd (NYSE:TECK), around 8.49% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, earmarking 8.27 percent of its 13F equity portfolio to TECK.
As aggregate interest increased, specific money managers were leading the bulls' herd. Southpoint Capital Advisors, managed by John Smith Clark, assembled the most outsized position in Teck Resources Ltd (NYSE:TECK). Southpoint Capital Advisors had $23 million invested in the company at the end of the quarter. Mark Kingdon's Kingdon Capital also made a $16.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Todd J. Kantor's Encompass Capital Advisors, Brandon Haley's Holocene Advisors, and Joe DiMenna's ZWEIG DIMENNA PARTNERS.
Let's check out hedge fund activity in other stocks – not necessarily in the same industry as Teck Resources Ltd (NYSE:TECK) but similarly valued. These stocks are Iron Mountain Incorporated (NYSE:IRM), InterContinental Hotels Group PLC (NYSE:IHG), Black Knight, Inc. (NYSE:BKI), Ozon Holdings PLC (NASDAQ:OZON), Dr. Reddy's Laboratories Limited (NYSE:RDY), Jack Henry & Associates, Inc. (NASDAQ:JKHY), and Tapestry, Inc. (NYSE:TPR). This group of stocks' market valuations resemble TECK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IRM,25,81927,9 IHG,6,10475,-2 BKI,33,995228,-7 OZON,19,190660,2 RDY,11,188216,-1 JKHY,22,180204,2 TPR,41,1128944,-9 Average,22.4,396522,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $397 million. That figure was $1277 million in TECK's case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 6 bullish hedge fund positions. Teck Resources Ltd (NYSE:TECK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TECK is 87.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on TECK as the stock returned 20% since the end of Q2 (through 10/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
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