How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding TriNet Group Inc (NYSE:TNET).
TriNet Group Inc (NYSE:TNET) investors should be aware of a decrease in hedge fund sentiment of late. TNET was in 21 hedge funds’ portfolios at the end of June. There were 24 hedge funds in our database with TNET holdings at the end of the previous quarter. Our calculations also showed that TNET isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action surrounding TriNet Group Inc (NYSE:TNET).
How are hedge funds trading TriNet Group Inc (NYSE:TNET)?
At Q2’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in TNET a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in TriNet Group Inc (NYSE:TNET) was held by Cantillon Capital Management, which reported holding $282.6 million worth of stock at the end of March. It was followed by Harbor Spring Capital with a $28.1 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Two Sigma Advisors.
Due to the fact that TriNet Group Inc (NYSE:TNET) has experienced bearish sentiment from hedge fund managers, we can see that there was a specific group of money managers who were dropping their full holdings heading into Q3. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $4.2 million in stock. Peter Muller’s fund, PDT Partners, also said goodbye to its stock, about $3.4 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as TriNet Group Inc (NYSE:TNET) but similarly valued. We will take a look at ONE Gas Inc (NYSE:OGS), The Stars Group Inc. (NASDAQ:TSG), Teladoc Health Inc (NYSE:TDOC), and Nordstrom, Inc. (NYSE:JWN). This group of stocks’ market valuations match TNET’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OGS | 14 | 93848 | -1 |
| TSG | 38 | 877092 | -6 |
| TDOC | 18 | 172338 | 1 |
| JWN | 27 | 158315 | 1 |
| Average | 24.25 | 325398 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $325 million. That figure was $430 million in TNET’s case. The Stars Group Inc. (NASDAQ:TSG) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 14 bullish hedge fund positions. TriNet Group Inc (NYSE:TNET) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TNET wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TNET investors were disappointed as the stock returned -8.3% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
