Total System Services, Inc. (TSS): Are Hedge Funds Right About This Stock?

We started seeing tectonic shifts in the market during the third quarter. Small-cap stocks underperformed the large-cap stocks by more than 10 percentage points between the end of June 2015 and the end of June 2016. A mean reversion in trends bumped small-cap stocks’ return to almost 9% in Q3, outperforming their large-cap peers by 5 percentage points. The momentum in small-cap space hasn’t subsided during this quarter either. Small-cap stocks beat large-cap stocks by another 5 percentage points during the first 7 weeks of this quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were boosting their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Total System Services, Inc. (NYSE:TSS).

Hedge fund interest in Total System Services, Inc. (NYSE:TSS) shares was flat during the third quarter. This is usually a negative indicator. At the end of this article we will also compare TSS to other stocks including CNH Industrial NV (NYSE:CNHI), Kansas City Southern (NYSE:KSU), and Restaurant Brands International Inc (NYSE:QSR) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, we’re going to go over the key action encompassing Total System Services, Inc. (NYSE:TSS).

How are hedge funds trading Total System Services, Inc. (NYSE:TSS)?

At the end of the third quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from one quarter earlier. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Cliff Asness’ AQR Capital Management has the biggest position in Total System Services, Inc. (NYSE:TSS), worth close to $91.4 million. The second largest stake is held by Renaissance Technologies, led by Jim Simons, holding a $43.3 million position. Remaining members of the smart money with similar optimism consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Fisher’s Fisher Asset Management.

Because Total System Services, Inc. (NYSE:TSS) has witnessed bearish sentiment from hedge fund managers, we can see that there is a sect of funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, James Parsons’ Junto Capital Management dumped the biggest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $36.3 million in call options, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $1.3 million worth of shares. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Total System Services, Inc. (NYSE:TSS). These stocks are CNH Industrial NV (NYSE:CNHI), Kansas City Southern (NYSE:KSU), Restaurant Brands International Inc (NYSE:QSR), and LKQ Corporation (NASDAQ:LKQ). All of these stocks’ market caps resemble TSS’s market cap.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.28 billion. That figure was $430 million in TSS’s case. Kansas City Southern (NYSE:KSU) is the most popular stock in this table. On the other hand CNH Industrial NV (NYSE:CNHI) is the least popular one with only 15 bullish hedge fund positions. Total System Services, Inc. (NYSE:TSS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on and have more money invested in. In this regard KSU might be a better candidate to consider a long position.

Disclosure: None