Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same 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’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Total System Services, Inc. (NYSE:TSS).
Is Total System Services, Inc. (NYSE:TSS) a splendid investment now? The best stock pickers are betting on the stock. The number of long hedge fund bets improved by 5 in recent months. Our calculations also showed that tss isn’t among the 30 most popular stocks among hedge funds.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We’re going to take a glance at the new hedge fund action surrounding Total System Services, Inc. (NYSE:TSS).
How have hedgies been trading Total System Services, Inc. (NYSE:TSS)?
At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in TSS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Total System Services, Inc. (NYSE:TSS), which was worth $427 million at the end of the first quarter. On the second spot was Millennium Management which amassed $114.3 million worth of shares. Moreover, Arrowstreet Capital, Samlyn Capital, and Point72 Asset Management were also bullish on Total System Services, Inc. (NYSE:TSS), allocating a large percentage of their portfolios to this stock.
Consequently, key hedge funds were leading the bulls’ herd. Prana Capital Management, managed by Peter Seuss, initiated the biggest position in Total System Services, Inc. (NYSE:TSS). Prana Capital Management had $17.9 million invested in the company at the end of the quarter. Vikas Lunia’s Lunia Capital also made a $11.4 million investment in the stock during the quarter. The following funds were also among the new TSS investors: Leon Shaulov’s Maplelane Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Matthew Tewksbury’s Stevens Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Total System Services, Inc. (NYSE:TSS) but similarly valued. We will take a look at CGI Inc. (NYSE:GIB), MSCI Inc (NYSE:MSCI), Continental Resources, Inc. (NYSE:CLR), and First Republic Bank (NYSE:FRC). All of these stocks’ market caps match TSS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GIB | 18 | 340331 | 1 |
| MSCI | 36 | 630783 | -2 |
| CLR | 31 | 559307 | -5 |
| FRC | 18 | 683851 | 3 |
| Average | 25.75 | 553568 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $554 million. That figure was $1151 million in TSS’s case. MSCI Inc (NYSE:MSCI) is the most popular stock in this table. On the other hand CGI Inc. (NYSE:GIB) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Total System Services, Inc. (NYSE:TSS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on TSS as the stock returned 29.5% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
