It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Triumph Bancorp Inc (NASDAQ:TBK).
Is Triumph Bancorp Inc (NASDAQ:TBK) the right investment to pursue these days? The best stock pickers are getting less bullish. The number of long hedge fund bets retreated by 1 lately. Our calculations also showed that TBK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TBK was in 6 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with TBK positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a glance at the recent hedge fund action encompassing Triumph Bancorp Inc (NASDAQ:TBK).
Hedge fund activity in Triumph Bancorp Inc (NASDAQ:TBK)
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TBK over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Mendon Capital Advisors, managed by Anton Schutz, holds the biggest position in Triumph Bancorp Inc (NASDAQ:TBK). Mendon Capital Advisors has a $11.9 million position in the stock, comprising 2% of its 13F portfolio. Coming in second is Forest Hill Capital, managed by Mark Lee, which holds a $9.3 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions encompass Ken Griffin’s Citadel Investment Group, Richard Driehaus’s Driehaus Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Forest Hill Capital allocated the biggest weight to Triumph Bancorp Inc (NASDAQ:TBK), around 3.28% of its 13F portfolio. Mendon Capital Advisors is also relatively very bullish on the stock, setting aside 2 percent of its 13F equity portfolio to TBK.
Seeing as Triumph Bancorp Inc (NASDAQ:TBK) has experienced declining sentiment from the smart money, logic holds that there was a specific group of hedgies that elected to cut their full holdings by the end of the third quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace sold off the biggest position of the 750 funds monitored by Insider Monkey, valued at about $1.6 million in stock, and Mitch Cantor’s Mountain Lake Investment Management was right behind this move, as the fund dropped about $1.3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Triumph Bancorp Inc (NASDAQ:TBK). These stocks are Golden Ocean Group Ltd (NASDAQ:GOGL), S.Y. Bancorp, Inc. (NASDAQ:SYBT), Lindblad Expeditions Holdings Inc (NASDAQ:LIND), and ProSight Global, Inc. (NYSE:PROS). All of these stocks’ market caps are closest to TBK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GOGL | 7 | 205416 | 0 |
| SYBT | 10 | 15559 | 4 |
| LIND | 18 | 167456 | 3 |
| PROS | 6 | 15728 | 6 |
| Average | 10.25 | 101040 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $29 million in TBK’s case. Lindblad Expeditions Holdings Inc (NASDAQ:LIND) is the most popular stock in this table. On the other hand ProSight Global, Inc. (NYSE:PROS) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Triumph Bancorp Inc (NASDAQ:TBK) is even less popular than PROS. Hedge funds clearly dropped the ball on TBK as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on TBK as the stock returned 12.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
