Should You Avoid Texas Pacific Land Trust (TPL)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Texas Pacific Land Trust (NYSE:TPL) based on that data.

Is Texas Pacific Land Trust (NYSE:TPL) a buy here? The smart money is turning less bullish. The number of bullish hedge fund bets fell by 3 in recent months. Our calculations also showed that TPL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 PayPal alternatives for international payments to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the recent hedge fund action regarding Texas Pacific Land Trust (NYSE:TPL).

What does smart money think about Texas Pacific Land Trust (NYSE:TPL)?

At Q1’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the fourth quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in TPL a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Horizon Asset Management held the most valuable stake in Texas Pacific Land Trust (NYSE:TPL), which was worth $661.1 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $9.7 million worth of shares. Tensile Capital, GLG Partners, and Beddow Capital Management 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 Horizon Asset Management allocated the biggest weight to Texas Pacific Land Trust (NYSE:TPL), around 29.27% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, designating 4.03 percent of its 13F equity portfolio to TPL.

Because Texas Pacific Land Trust (NYSE:TPL) has faced a decline in interest from the smart money, we can see that there lies a certain “tier” of hedge funds that slashed their entire stakes in the first quarter. Interestingly, Brian Ashford-Russell and Tim Woolley’s Polar Capital cut the biggest position of the 750 funds watched by Insider Monkey, comprising an estimated $27.6 million in stock, and Matthew Iorio’s White Elm Capital was right behind this move, as the fund cut about $7.2 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Texas Pacific Land Trust (NYSE:TPL) but similarly valued. We will take a look at Wyndham Hotels & Resorts, Inc. (NYSE:WH), Valley National Bancorp (NYSE:VLY), Perspecta Inc. (NYSE:PRSP), and Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI). This group of stocks’ market values are similar to TPL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $694 million in TPL’s case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Texas Pacific Land Trust (NYSE:TPL) is even less popular than OLLI. Hedge funds clearly dropped the ball on TPL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on TPL as the stock returned 53.8% so far in the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.