Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The TJX Companies, Inc. (NYSE:TJX).
The TJX Companies, Inc. (NYSE:TJX) has experienced an increase in hedge fund interest lately. Our calculations also showed that TJX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to take a peek at the latest hedge fund action encompassing The TJX Companies, Inc. (NYSE:TJX).
Hedge fund activity in The TJX Companies, Inc. (NYSE:TJX)
At the end of the fourth quarter, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in TJX over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The TJX Companies, Inc. (NYSE:TJX) was held by Diamond Hill Capital, which reported holding $411.2 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $289.1 million position. Other investors bullish on the company included AQR Capital Management, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to The TJX Companies, Inc. (NYSE:TJX), around 6.86% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, designating 6.7 percent of its 13F equity portfolio to TJX.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the biggest position in The TJX Companies, Inc. (NYSE:TJX). Adage Capital Management had $84.8 million invested in the company at the end of the quarter. Kamyar Khajavi’s MIK Capital also initiated a $19.7 million position during the quarter. The following funds were also among the new TJX investors: Steven Boyd’s Armistice Capital, Dennis Goldstein’s Rip Road Capital, and Robert Pitts’s Steadfast Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The TJX Companies, Inc. (NYSE:TJX) but similarly valued. These stocks are Ambev SA (NYSE:ABEV), CME Group Inc (NASDAQ:CME), Banco Bradesco SA (NYSE:BBD), and ConocoPhillips (NYSE:COP). All of these stocks’ market caps resemble TJX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABEV | 14 | 548416 | -5 |
| CME | 54 | 2402338 | 2 |
| BBD | 18 | 661816 | 1 |
| COP | 62 | 2437765 | -8 |
| Average | 37 | 1512584 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1513 million. That figure was $2183 million in TJX’s case. ConocoPhillips (NYSE:COP) is the most popular stock in this table. On the other hand Ambev SA (NYSE:ABEV) is the least popular one with only 14 bullish hedge fund positions. The TJX Companies, Inc. (NYSE:TJX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on TJX as the stock returned -6% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
