Is TD Ameritrade Holding Corp. (AMTD) Worthy of Your Portfolio?

The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at TD Ameritrade Holding Corp. (NYSE:AMTD) from the perspective of those successful funds.

TD Ameritrade Holding Corp. (NYSE:AMTD) was in 17 hedge funds’ portfolios at the end of September. AMTD investors should be aware of an increase in enthusiasm from smart money lately as there had been 13 funds in our database with AMTD holdings at the end of the previous quarter. At the end of this article we will also compare AMTD to other stocks, including Grupo Televisa SAB (ADR) (NYSE:TV), American Water Works Co., Inc. (NYSE:AWK), and Energy Transfer Equity, L.P. (NYSE:ETE) to get a better sense of its popularity.

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 TD Ameritrade Holding Corp. (NYSE:AMTD)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, up by 31% from the end of June. On the other hand, there were a total of 22 hedge funds with a bullish position in AMTD at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Charles Akre’s Akre Capital Management has the biggest position in TD Ameritrade Holding Corp. (NYSE:AMTD), worth close to $104.6 million, comprising 2% of its total 13F portfolio. The second most bullish fund manager is Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management, with a $42.3 million position; 4% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish consist of Eli Cohen’s Crescent Park Management and Robert Joseph Caruso’s Select Equity Group. We should note that none of these hedge funds are 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.

Now, specific money managers have jumped into TD Ameritrade Holding Corp. (NYSE:AMTD) headfirst. Dmitry Balyasny’s Balyasny Asset Management  made a $26 million investment in the stock during the third quarter. The following funds were also among the new AMTD investors: Sander Gerber’s Hudson Bay Capital Management, Ken Griffin’s Citadel Investment Group, and Israel Englander’s Millennium Management.

Let’s go over hedge fund activity in other stocks similar to TD Ameritrade Holding Corp. (NYSE:AMTD). These stocks are Grupo Televisa SAB (ADR) (NYSE:TV), American Water Works Co., Inc. (NYSE:AWK), Energy Transfer Equity, L.P. (NYSE:ETE), and Incyte Corporation (NASDAQ:INCY). This group of stocks’ market caps are similar to AMTD’s market cap.

As you can see these stocks had an average of 28 funds with bullish positions and the average amount invested in these stocks was $1.51 billion. That figure was $291 million in AMTD’s case. Incyte Corporation (NASDAQ:INCY) is the most popular stock in this table. On the other hand Energy Transfer Equity, L.P. (NYSE:ETE) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks TD Ameritrade Holding Corp. (NYSE:AMTD) is even less popular than Energy Transfer Equity, L.P. (NYSE:ETE). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None