Hedge Funds Are Rapidly Ditching TriNet Group Inc (TNET): What Has Them Spooked?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

TriNet Group Inc (NYSE:TNET) shareholders have witnessed a decrease in support from the world’s most successful money managers in recent months. TNET was in 14 hedge funds’ portfolios at the end of the third quarter of 2016. There were 21 hedge funds in our database with TNET holdings at the end of the previous quarter. 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 Sohu.com Inc (NASDAQ:SOHU), Plantronics, Inc. (NYSE:PLT), and Banner Corporation (NASDAQ:BANR) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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What have hedge funds been doing with TriNet Group Inc (NYSE:TNET)?

Heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 33% drop from one quarter earlier and the second quarter in a row with a notable drop in ownership. Below, you can check out the change in hedge fund sentiment towards TNET over the last 5 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, William von Mueffling’s Cantillon Capital Management has the number one position in TriNet Group Inc (NYSE:TNET), worth close to $58.9 million. The second largest stake is held by William C. Martin of Raging Capital Management, with a $12.7 million position; 1.8% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism consist of Israel Englander’s Millennium Management, Scott Scher & Michael Prober’s Clovis Capital Management, and Jim Simons’ Renaissance Technologies. We should note that Raging Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Seeing as TriNet Group Inc (NYSE:TNET) has experienced falling interest from the aggregate hedge fund industry, we can see that there is a sect of hedge funds who were dropping their positions entirely by the end of the third quarter. Intriguingly, Eric Bannasch’s Cadian Capital said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $44.3 million in stock. Michael R. Weisberg’s fund, Crestwood Capital Management, also dropped its stock, about $6.1 million worth.

Let’s go over hedge fund activity in other stocks similar to TriNet Group Inc (NYSE:TNET). We will take a look at Sohu.com Inc (NASDAQ:SOHU), Plantronics, Inc. (NYSE:PLT), Banner Corporation (NASDAQ:BANR), and Nexstar Broadcasting Group, Inc. (NASDAQ:NXST). This group of stocks’ market valuations resemble TNET’s market valuation.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $405 million. That figure was $124 million in TNET’s case. Nexstar Broadcasting Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand Plantronics, Inc. (NYSE:PLT) is the least popular one with only 12 bullish hedge fund positions. TriNet Group Inc (NYSE:TNET) 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 NXST might be a better candidate to consider taking a long position in.

Disclosure: None