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 TAL Education Group (NYSE:TAL) and determine whether hedge funds skillfully traded this stock.
TAL Education Group (NYSE:TAL) has experienced an increase in hedge fund sentiment of late. TAL Education Group (NYSE:TAL) was in 40 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TAL 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.
According to most shareholders, hedge funds are perceived as unimportant, outdated financial vehicles of the past. While there are over 8000 funds trading today, Our experts look at the leaders of this group, about 850 funds. It is estimated that this group of investors control bulk of the smart money’s total asset base, and by watching their top investments, Insider Monkey has unearthed a number of investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
James Dinan of York Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to take a look at the fresh hedge fund action surrounding TAL Education Group (NYSE:TAL).
How have hedgies been trading TAL Education Group (NYSE:TAL)?
At Q2’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the first quarter of 2020. By comparison, 25 hedge funds held shares or bullish call options in TAL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Hillhouse Capital Management held the most valuable stake in TAL Education Group (NYSE:TAL), which was worth $540.6 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $394.1 million worth of shares. Yiheng Capital, Renaissance Technologies, and Serenity Capital 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 Serenity Capital allocated the biggest weight to TAL Education Group (NYSE:TAL), around 40.73% of its 13F portfolio. Yiheng Capital is also relatively very bullish on the stock, earmarking 14.91 percent of its 13F equity portfolio to TAL.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into TAL Education Group (NYSE:TAL) headfirst. GQG Partners, managed by Rajiv Jain, created the largest position in TAL Education Group (NYSE:TAL). GQG Partners had $129 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $25.8 million position during the quarter. The other funds with new positions in the stock are James Dinan’s York Capital Management, Andrew Dalrymple and Barry McCorkell’s Aubrey Capital Management, and Josh Resnick’s Jericho Capital Asset Management.
Let’s go over hedge fund activity in other stocks similar to TAL Education Group (NYSE:TAL). These stocks are TC Energy Corporation (NYSE:TRP), Banco Santander, S.A. (NYSE:SAN), Keurig Dr Pepper Inc. (NYSE:KDP), Enterprise Products Partners L.P. (NYSE:EPD), Prudential Public Limited Company (NYSE:PUK), American Electric Power Company, Inc. (NYSE:AEP), and DuPont de Nemours Inc (NYSE:DD). All of these stocks’ market caps resemble TAL’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRP,21,255710,-3 SAN,16,351399,-2 KDP,29,725935,-1 EPD,30,222209,4 PUK,5,9403,-1 AEP,34,753751,-4 DD,64,3509743,10 Average,28.4,832593,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $833 million. That figure was $2367 million in TAL’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 5 bullish hedge fund positions. TAL Education Group (NYSE:TAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TAL is 66.7. 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 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately TAL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TAL were disappointed as the stock returned 7.9% 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.
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Disclosure: None. This article was originally published at Insider Monkey.