Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Toronto-Dominion Bank (NYSE:TD) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Toronto-Dominion Bank (NYSE:TD) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of the fourth quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as American Express Company (NYSE:AXP), American Tower Corporation (NYSE:AMT), and 3M Company (NYSE:MMM) to gather more data points. Our calculations also showed that TD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
According to most stock holders, hedge funds are perceived as unimportant, outdated financial tools of yesteryear. While there are greater than 8000 funds trading at the moment, We look at the bigwigs of this club, approximately 850 funds. These investment experts manage the majority of the smart money’s total capital, and by watching their highest performing stock picks, Insider Monkey has discovered a few investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
David E. Shaw of D.E. Shaw
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to take a peek at the fresh hedge fund action surrounding Toronto-Dominion Bank (NYSE:TD).
Hedge fund activity in Toronto-Dominion Bank (NYSE:TD)
At Q4’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in TD a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Toronto-Dominion Bank (NYSE:TD), which was worth $88.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $36 million worth of shares. Citadel Investment Group, GLG Partners, and Bridgewater Associates 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 Heathbridge Capital Management allocated the biggest weight to Toronto-Dominion Bank (NYSE:TD), around 5.2% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, designating 0.99 percent of its 13F equity portfolio to TD.
Because Toronto-Dominion Bank (NYSE:TD) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that elected to cut their entire stakes in the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of all the hedgies monitored by Insider Monkey, worth close to $46.9 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dumped its stock, about $5.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Toronto-Dominion Bank (NYSE:TD). These stocks are American Express Company (NYSE:AXP), American Tower Corporation (NYSE:AMT), 3M Company (NYSE:MMM), and QUALCOMM, Incorporated (NASDAQ:QCOM). This group of stocks’ market values are closest to TD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXP | 58 | 22554070 | 3 |
| AMT | 46 | 3658378 | -6 |
| MMM | 46 | 855763 | -6 |
| QCOM | 67 | 3090818 | 7 |
| Average | 54.25 | 7539757 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.25 hedge funds with bullish positions and the average amount invested in these stocks was $7540 million. That figure was $313 million in TD’s case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand American Tower Corporation (NYSE:AMT) is the least popular one with only 46 bullish hedge fund positions. Compared to these stocks Toronto-Dominion Bank (NYSE:TD) is even less popular than AMT. Hedge funds dodged a bullet by taking a bearish stance towards TD. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately TD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TD investors were disappointed as the stock returned -24% during the same time period 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 most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
