Were Hedge Funds Wrong About Piling Into T. Rowe Price Group, Inc. (TROW)?

In this article we will check out the progression of hedge fund sentiment towards T. Rowe Price Group, Inc. (NASDAQ:TROW) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

T. Rowe Price Group, Inc. (NASDAQ:TROW) investors should pay attention to an increase in enthusiasm from smart money in recent months. T. Rowe Price Group, Inc. (NASDAQ:TROW) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TROW isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a look at the new hedge fund action surrounding T. Rowe Price Group, Inc. (NASDAQ:TROW).

What does smart money think about T. Rowe Price Group, Inc. (NASDAQ:TROW)?

At second quarter’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from the first quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in TROW a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of T. Rowe Price Group, Inc. (NASDAQ:TROW), with a stake worth $79.6 million reported as of the end of June. Trailing AQR Capital Management was Junto Capital Management, which amassed a stake valued at $49 million. Markel Gayner Asset Management, Adage Capital Management, and Citadel Investment Group 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 Junto Capital Management allocated the biggest weight to T. Rowe Price Group, Inc. (NASDAQ:TROW), around 2.1% of its 13F portfolio. Shanda Asset Management is also relatively very bullish on the stock, earmarking 1.11 percent of its 13F equity portfolio to TROW.

As one would reasonably expect, key money managers have been driving this bullishness. Junto Capital Management, managed by James Parsons, established the most valuable position in T. Rowe Price Group, Inc. (NASDAQ:TROW). Junto Capital Management had $49 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $17.9 million position during the quarter. The following funds were also among the new TROW investors: Israel Englander’s Millennium Management, Chen Tianqiao’s Shanda Asset Management, and Peter Seuss’s Prana Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to T. Rowe Price Group, Inc. (NASDAQ:TROW). We will take a look at IDEXX Laboratories, Inc. (NASDAQ:IDXX), Alcon Inc. (NYSE:ALC), CoStar Group Inc (NASDAQ:CSGP), MSCI Inc (NYSE:MSCI), Marriott International Inc (NASDAQ:MAR), ResMed Inc. (NYSE:RMD), and SYSCO Corporation (NYSE:SYY). This group of stocks’ market caps are closest to TROW’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1223 million. That figure was $338 million in TROW’s case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 21 bullish hedge fund positions. T. Rowe Price Group, Inc. (NASDAQ:TROW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TROW is 62.4. 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. 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 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 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately TROW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TROW investors were disappointed as the stock returned 3.3% since the end of June (through 10/30) 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 most of these stocks already outperformed the market in 2020.

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