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 TPG Specialty Lending Inc (NYSE:TSLX).
TPG Specialty Lending Inc (NYSE:TSLX) was in 8 hedge funds’ portfolios at the end of the third quarter of 2019. TSLX investors should be aware of a decrease in hedge fund interest recently. There were 10 hedge funds in our database with TSLX holdings at the end of the previous quarter. Our calculations also showed that TSLX 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’ 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.
Israel Englander of Millennium Management
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. We’re going to review the recent hedge fund action encompassing TPG Specialty Lending Inc (NYSE:TSLX).
How have hedgies been trading TPG Specialty Lending Inc (NYSE:TSLX)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TSLX over the last 17 quarters. So, let’s find out 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, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the biggest position in TPG Specialty Lending Inc (NYSE:TSLX), worth close to $23.4 million, amounting to 0.1% of its total 13F portfolio. The second largest stake is held by Charles Clough of Clough Capital Partners, with a $17.4 million position; 1.4% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions comprise Israel Englander’s Millennium Management, Daniel Johnson’s Gillson Capital and Robert B. Gillam’s McKinley Capital Management. In terms of the portfolio weights assigned to each position Clough Capital Partners allocated the biggest weight to TPG Specialty Lending Inc (NYSE:TSLX), around 1.44% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, designating 0.53 percent of its 13F equity portfolio to TSLX.
Judging by the fact that TPG Specialty Lending Inc (NYSE:TSLX) has witnessed falling interest from hedge fund managers, it’s easy to see that there exists a select few funds who were dropping their entire stakes by the end of the third quarter. Intriguingly, Jeffrey Talpins’s Element Capital Management dumped the largest investment of all the hedgies watched by Insider Monkey, worth an estimated $2.6 million in stock. Minhua Zhang’s fund, Weld Capital Management, also cut its stock, about $0.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to TPG Specialty Lending Inc (NYSE:TSLX). These stocks are Alamo Group, Inc. (NYSE:ALG), TriMas Corp (NASDAQ:TRS), Employers Holdings, Inc. (NYSE:EIG), and Marcus & Millichap Inc (NYSE:MMI). This group of stocks’ market caps match TSLX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALG | 10 | 216837 | 3 |
| TRS | 14 | 110541 | -1 |
| EIG | 14 | 76306 | -2 |
| MMI | 14 | 111080 | 2 |
| Average | 13 | 128691 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $62 million in TSLX’s case. TriMas Corp (NASDAQ:TRS) is the most popular stock in this table. On the other hand Alamo Group, Inc. (NYSE:ALG) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks TPG Specialty Lending Inc (NYSE:TSLX) is even less popular than ALG. Hedge funds dodged a bullet by taking a bearish stance towards TSLX. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TSLX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TSLX investors were disappointed as the stock returned 3.3% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
