Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Del Taco Restaurants Inc (NASDAQ:TACO).
Is Del Taco Restaurants Inc (NASDAQ:TACO) a bargain? The best stock pickers are in a bullish mood. The number of bullish hedge fund bets rose by 1 recently. Our calculations also showed that TACO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are several gauges shareholders employ to assess stocks. Two of the most under-the-radar gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top money managers can outpace the broader indices by a superb amount (see the details here).
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the fresh hedge fund action regarding Del Taco Restaurants Inc (NASDAQ:TACO).
What have hedge funds been doing with Del Taco Restaurants Inc (NASDAQ:TACO)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TACO over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Del Taco Restaurants Inc (NASDAQ:TACO), which was worth $8.6 million at the end of the third quarter. On the second spot was Woodson Capital Management which amassed $6.1 million worth of shares. Two Sigma Advisors, Marshall Wace, and Coatue Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Woodson Capital Management allocated the biggest weight to Del Taco Restaurants Inc (NASDAQ:TACO), around 0.95% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.24 percent of its 13F equity portfolio to TACO.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Winton Capital Management, managed by David Harding, assembled the most valuable position in Del Taco Restaurants Inc (NASDAQ:TACO). Winton Capital Management had $1.5 million invested in the company at the end of the quarter.
Let’s go over hedge fund activity in other stocks similar to Del Taco Restaurants Inc (NASDAQ:TACO). We will take a look at Bloom Energy Corporation (NYSE:BE), BioDelivery Sciences International, Inc. (NASDAQ:BDSI), Envirostar Inc (NYSEAMEX:EVI), and Overstock.com, Inc. (NASDAQ:OSTK). This group of stocks’ market values are similar to TACO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BE | 14 | 20615 | 3 |
| BDSI | 18 | 109364 | 2 |
| EVI | 2 | 34322 | 1 |
| OSTK | 4 | 3762 | -5 |
| Average | 9.5 | 42016 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $30 million in TACO’s case. BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is the most popular stock in this table. On the other hand Envirostar Inc (NYSEAMEX:EVI) is the least popular one with only 2 bullish hedge fund positions. Del Taco Restaurants Inc (NASDAQ:TACO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TACO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TACO were disappointed as the stock returned -26.8% during the fourth quarter (through the end of November) 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
