Teleflex Incorporated (TFX) Fell Out Of Favor With Hedge Funds

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Teleflex Incorporated (NYSE:TFX) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Teleflex Incorporated (NYSE:TFX) investors should be aware of a decrease in hedge fund sentiment in recent months. Teleflex Incorporated (NYSE:TFX) was in 28 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 32. There were 32 hedge funds in our database with TFX holdings at the end of March. Our calculations also showed that TFX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s view the new hedge fund action regarding Teleflex Incorporated (NYSE:TFX).

What does smart money think about Teleflex Incorporated (NYSE:TFX)?

At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TFX over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Marshall Wace LLP held the most valuable stake in Teleflex Incorporated (NYSE:TFX), which was worth $247.1 million at the end of the third quarter. On the second spot was Select Equity Group which amassed $107.4 million worth of shares. Citadel Investment Group, Adage Capital Management, and Rock Springs 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 Sectoral Asset Management allocated the biggest weight to Teleflex Incorporated (NYSE:TFX), around 1.89% of its 13F portfolio. Osterweis Capital Management is also relatively very bullish on the stock, earmarking 1.79 percent of its 13F equity portfolio to TFX.

Due to the fact that Teleflex Incorporated (NYSE:TFX) has witnessed falling interest from hedge fund managers, logic holds that there exists a select few fund managers that slashed their full holdings last quarter. Intriguingly, Arthur B Cohen and Joseph Healey’s Healthcor Management LP cut the biggest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $119.2 million in stock. Donald Sussman’s fund, Paloma Partners, also sold off its stock, about $1.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 4 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Teleflex Incorporated (NYSE:TFX). We will take a look at Freeport-McMoRan Inc. (NYSE:FCX), W.W. Grainger, Inc. (NYSE:GWW), Occidental Petroleum Corporation (NYSE:OXY), Weyerhaeuser Co. (NYSE:WY), CMS Energy Corporation (NYSE:CMS), West Pharmaceutical Services Inc. (NYSE:WST), and Smith & Nephew plc (NYSE:SNN). This group of stocks’ market values are similar to TFX’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $683 million. That figure was $651 million in TFX’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 12 bullish hedge fund positions. Teleflex Incorporated (NYSE:TFX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TFX is 46.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately TFX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TFX investors were disappointed as the stock returned -7.7% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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