Was The Smart Money Right About Texas Capital Bancshares Inc (TCBI)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Texas Capital Bancshares Inc (NASDAQ:TCBI) and determine whether hedge funds skillfully traded this stock.

Is Texas Capital Bancshares Inc (NASDAQ:TCBI) an outstanding investment now? Hedge funds were in an optimistic mood. The number of bullish hedge fund positions improved by 5 lately. Texas Capital Bancshares Inc (NASDAQ:TCBI) was in 32 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic was previously 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TCBI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a gander at the latest hedge fund action encompassing Texas Capital Bancshares Inc (NASDAQ:TCBI).

Fred Cummings of Elizabeth Park Capital

Do Hedge Funds Think TCBI Is A Good Stock To Buy Now?

At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the second quarter of 2021. On the other hand, there were a total of 20 hedge funds with a bullish position in TCBI a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in Texas Capital Bancshares Inc (NASDAQ:TCBI) was held by D E Shaw, which reported holding $37.8 million worth of stock at the end of September. It was followed by Carlson Capital with a $25.8 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Elizabeth Park Capital Management allocated the biggest weight to Texas Capital Bancshares Inc (NASDAQ:TCBI), around 1.95% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, earmarking 1.79 percent of its 13F equity portfolio to TCBI.

As industrywide interest jumped, key hedge funds have jumped into Texas Capital Bancshares Inc (NASDAQ:TCBI) headfirst. Elizabeth Park Capital Management, managed by Fred Cummings, assembled the biggest position in Texas Capital Bancshares Inc (NASDAQ:TCBI). Elizabeth Park Capital Management had $5.5 million invested in the company at the end of the quarter. Karim Abbadi and Edward McBride’s Centiva Capital also initiated a $1.3 million position during the quarter. The other funds with new positions in the stock are Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital), Jinghua Yan’s TwinBeech Capital, and Steve Cohen’s Point72 Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Texas Capital Bancshares Inc (NASDAQ:TCBI) but similarly valued. We will take a look at Intra-Cellular Therapies Inc (NASDAQ:ITCI), Corporate Office Properties Trust (NYSE:OFC), Nelnet, Inc. (NYSE:NNI), ABM Industries, Inc. (NYSE:ABM), Vroom, Inc. (NASDAQ:VRM), Dorman Products Inc. (NASDAQ:DORM), and CNO Financial Group Inc (NYSE:CNO). All of these stocks’ market caps resemble TCBI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.9 hedge funds with bullish positions and the average amount invested in these stocks was $169 million. That figure was $284 million in TCBI’s case. Vroom, Inc. (NASDAQ:VRM) is the most popular stock in this table. On the other hand Corporate Office Properties Trust (NYSE:OFC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Texas Capital Bancshares Inc (NASDAQ:TCBI) is more popular among hedge funds. Our overall hedge fund sentiment score for TCBI is 90. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on TCBI as the stock returned 4.5% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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