Hedge Funds Are Dumping Toronto-Dominion Bank (USA) (TD)

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Toronto-Dominion Bank (USA) (NYSE:TD) and see how it was affected.

Toronto-Dominion Bank (USA) (NYSE:TD) shareholders have witnessed a decrease in hedge fund sentiment recently. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as China Petroleum & Chemical Corp (ADR) (NYSE:SNP), U.S. Bancorp (NYSE:USB), and UBS AG (USA) (NYSE:UBS) to gather more data points.

In the eyes of most traders, hedge funds are viewed as slow, outdated financial tools of years past. While there are greater than an 8000 funds in operation today, Our experts choose to focus on the leaders of this group, approximately 700 funds. These hedge fund managers administer most of all hedge funds’ total capital, and by monitoring their best equity investments, Insider Monkey has discovered a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, let’s take a glance at the fresh action regarding Toronto-Dominion Bank (USA) (NYSE:TD).

What does the smart money think about Toronto-Dominion Bank (USA) (NYSE:TD)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Tetrem Capital Management, managed by Daniel Bubis, holds the number one position in Toronto-Dominion Bank (USA) (NYSE:TD). Tetrem Capital Management has a $226.2 million position in the stock, comprising 7.7% of its 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $63.7 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism encompass Jim Simons’ Renaissance Technologies, Brian Ashford-Russell and Tim Woolley’s Polar Capital and Ken Griffin’s Citadel Investment Group.

Since Toronto-Dominion Bank (USA) (NYSE:TD) has faced a declination in interest from the aggregate hedge fund industry, logic holds that there was a specific group of money managers that elected to cut their full holdings last quarter. At the top of the heap, Robert B. Gillam’s McKinley Capital Management dumped the biggest stake of the 700 funds monitored by Insider Monkey, comprising about $14.5 million in stock. Ray Carroll’s fund, Breton Hill Capital, also said goodbye to its stock, about $6.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Toronto-Dominion Bank (USA) (NYSE:TD). We will take a look at China Petroleum & Chemical Corp (ADR) (NYSE:SNP), U.S. Bancorp (NYSE:USB), UBS AG (USA) (NYSE:UBS), and Biogen Idec Inc. (NASDAQ:BIIB). All of these stocks’ market caps are similar to TD’s market cap.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $2.28 billion. That figure was $342 million in TD’s case. Biogen Idec Inc. (NASDAQ:BIIB) is the most popular stock in this table, while China Petroleum & Chemical Corp (ADR) (NYSE:SNP) is the least popular one with only 7 bullish hedge fund positions. Toronto-Dominion Bank (USA) (NYSE:TD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BIIB might be a better candidate to consider a long position.