Were Hedge Funds Right About Souring On TIM Participacoes SA (TSU)?

Reymerlyn Martin

Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.

TIM Participacoes SA (NYSE:TSU) investors should pay attention to a decrease in enthusiasm from smart money in recent months. TSU was in 14 hedge funds' portfolios at the end of December. There were 16 hedge funds in our database with TSU holdings at the end of the previous quarter. Our calculations also showed that TSU isn't among the 30 most popular stocks among hedge funds.

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.

Steven Tananbaum - GoldenTree Asset Management
Steven Tananbaum - GoldenTree Asset Management

We're going to take a look at the fresh hedge fund action encompassing TIM Participacoes SA (NYSE:TSU).

Hedge fund activity in TIM Participacoes SA (NYSE:TSU)

At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TSU over the last 14 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

TSU_apr2019
TSU_apr2019

More specifically, AQR Capital Management was the largest shareholder of TIM Participacoes SA (NYSE:TSU), with a stake worth $101.8 million reported as of the end of September. Trailing AQR Capital Management was Paulson & Co, which amassed a stake valued at $76.7 million. Renaissance Technologies, GoldenTree Asset Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that TIM Participacoes SA (NYSE:TSU) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few funds that slashed their entire stakes in the third quarter. Interestingly, Noam Gottesman's GLG Partners said goodbye to the biggest position of all the hedgies watched by Insider Monkey, comprising close to $21.2 million in stock. D. E. Shaw's fund, D E Shaw, also dumped its stock, about $4.2 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds in the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as TIM Participacoes SA (NYSE:TSU) but similarly valued. These stocks are Tripadvisor Inc (NASDAQ:TRIP), Credit Acceptance Corp. (NASDAQ:CACC), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), and Sensata Technologies Holding N.V. (NYSE:ST). All of these stocks' market caps are closest to TSU's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRIP,29,1521641,3 CACC,22,990354,2 ALNY,28,628086,-4 ST,23,1307637,-3 Average,25.5,1111930,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $1112 million. That figure was $320 million in TSU's case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand Credit Acceptance Corp. (NASDAQ:CACC) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks TIM Participacoes SA (NYSE:TSU) is even less popular than CACC. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately TSU wasn't in this group. Hedge funds that bet on TSU were disappointed as the stock returned 7.2% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.

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

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