We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Texas Capital Bancshares Inc (NASDAQ:TCBI).
Texas Capital Bancshares Inc (NASDAQ:TCBI) investors should be aware of an increase in activity from the world’s largest hedge funds recently. TCBI was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. There were 19 hedge funds in our database with TCBI holdings at the end of the previous quarter. Our calculations also showed that TCBI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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’ 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 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 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.
Matthew Lindenbaum of Basswood Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s view the fresh hedge fund action surrounding Texas Capital Bancshares Inc (NASDAQ:TCBI).
What does smart money think about Texas Capital Bancshares Inc (NASDAQ:TCBI)?
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in TCBI 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 Texas Capital Bancshares Inc (NASDAQ:TCBI), which was worth $97.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $36.8 million worth of shares. Kettle Hill Capital Management, Renaissance Technologies, and Spindletop Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Spindletop Capital allocated the biggest weight to Texas Capital Bancshares Inc (NASDAQ:TCBI), around 18.77% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, dishing out 6.64 percent of its 13F equity portfolio to TCBI.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Basswood Capital, managed by Matthew Lindenbaum, assembled the largest position in Texas Capital Bancshares Inc (NASDAQ:TCBI). Basswood Capital had $7.9 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also made a $2 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Renee Yao’s Neo Ivy Capital, and Donald Sussman’s Paloma Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Texas Capital Bancshares Inc (NASDAQ:TCBI) but similarly valued. These stocks are Urban Outfitters, Inc. (NASDAQ:URBN), Hilton Grand Vacations Inc. (NYSE:HGV), Proto Labs Inc (NYSE:PRLB), and El Paso Electric Company (NYSE:EE). All of these stocks’ market caps resemble TCBI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| URBN | 33 | 292388 | 12 |
| HGV | 42 | 1078532 | 5 |
| PRLB | 8 | 14581 | -1 |
| EE | 13 | 387516 | -3 |
| Average | 24 | 443254 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $443 million. That figure was $249 million in TCBI’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 8 bullish hedge fund positions. Texas Capital Bancshares Inc (NASDAQ:TCBI) 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. 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. Unfortunately TCBI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TCBI investors were disappointed as the stock returned 5.8% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
