Amid an overall bull market, many stocks that smart money investors were collectively bullish on 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. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is TFS Financial Corporation (NASDAQ:TFSL) a marvelous investment today? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets inched up by 3 in recent months. Our calculations also showed that TFSL 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.
To most shareholders, hedge funds are assumed to be underperforming, outdated investment vehicles of the past. While there are greater than 8000 funds in operation at the moment, Our experts choose to focus on the top tier of this club, about 750 funds. These money managers manage bulk of the hedge fund industry’s total asset base, and by observing their best investments, Insider Monkey has figured out numerous investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Jim Simons of Renaissance Technologies
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 take a look at the recent hedge fund action regarding TFS Financial Corporation (NASDAQ:TFSL).
What have hedge funds been doing with TFS Financial Corporation (NASDAQ:TFSL)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 60% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TFSL over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in TFS Financial Corporation (NASDAQ:TFSL), which was worth $117.9 million at the end of the third quarter. On the second spot was Empyrean Capital Partners which amassed $32.2 million worth of shares. Winton Capital Management, AQR Capital Management, and Millennium 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 Empyrean Capital Partners allocated the biggest weight to TFS Financial Corporation (NASDAQ:TFSL), around 1.68% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.1 percent of its 13F equity portfolio to TFSL.
As one would reasonably expect, some big names were leading the bulls’ herd. Winton Capital Management, managed by David Harding, created the most outsized position in TFS Financial Corporation (NASDAQ:TFSL). Winton Capital Management had $3.9 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.7 million position during the quarter. The only other fund with a brand new TFSL position is Steve Cohen’s Point72 Asset Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as TFS Financial Corporation (NASDAQ:TFSL) but similarly valued. We will take a look at Texas Pacific Land Trust (NYSE:TPL), Manpowergroup Inc (NYSE:MAN), Portland General Electric Company (NYSE:POR), and Science Applications International Corp (NYSE:SAIC). This group of stocks’ market values resemble TFSL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPL | 12 | 1254260 | -4 |
| MAN | 19 | 377209 | 2 |
| POR | 23 | 391261 | 5 |
| SAIC | 24 | 350974 | -2 |
| Average | 19.5 | 593426 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $593 million. That figure was $158 million in TFSL’s case. Science Applications International Corp (NYSE:SAIC) is the most popular stock in this table. On the other hand Texas Pacific Land Trust (NYSE:TPL) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks TFS Financial Corporation (NASDAQ:TFSL) is even less popular than TPL. Hedge funds clearly dropped the ball on TFSL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on TFSL as the stock returned 12.6% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
