Were Hedge Funds Right About Souring On Textainer Group Holdings Limited (TGH)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtTextainer Group Holdings Limited (NYSE:TGH) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Textainer Group Holdings Limited (NYSE:TGH) a cheap investment today? Hedge funds were getting less optimistic. The number of long hedge fund bets retreated by 2 lately. Our calculations also showed that TGH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the key hedge fund action surrounding Textainer Group Holdings Limited (NYSE:TGH).

What does smart money think about Textainer Group Holdings Limited (NYSE:TGH)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the fourth quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in TGH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Rutabaga Capital Management was the largest shareholder of Textainer Group Holdings Limited (NYSE:TGH), with a stake worth $5 million reported as of the end of September. Trailing Rutabaga Capital Management was Renaissance Technologies, which amassed a stake valued at $4.8 million. Arrowstreet Capital, Citadel Investment Group, 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 Rutabaga Capital Management allocated the biggest weight to Textainer Group Holdings Limited (NYSE:TGH), around 3% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to TGH.

Seeing as Textainer Group Holdings Limited (NYSE:TGH) has experienced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedge funds who were dropping their full holdings by the end of the first quarter. Intriguingly, Andrew Weiss’s Weiss Asset Management cut the biggest stake of all the hedgies watched by Insider Monkey, totaling about $4.8 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also said goodbye to its stock, about $0.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Textainer Group Holdings Limited (NYSE:TGH). These stocks are DRDGOLD Ltd. (NYSE:DRD), Clovis Oncology Inc (NASDAQ:CLVS), Atreca, Inc. (NASDAQ:BCEL), and Tanger Factory Outlet Centers Inc. (NYSE:SKT). This group of stocks’ market valuations resemble TGH’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $14 million in TGH’s case. Tanger Factory Outlet Centers Inc. (NYSE:SKT) is the most popular stock in this table. On the other hand DRDGOLD Ltd. (NYSE:DRD) is the least popular one with only 2 bullish hedge fund positions. Textainer Group Holdings Limited (NYSE:TGH) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately TGH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TGH were disappointed as the stock returned -0.5% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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