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Did Hedge Funds Drop The Ball With TAL Education Group, Inc. (TAL) ?

Before we spend countless hours researching a company, we’d like to analyze what insiders, hedge funds and billionaire investors think of the stock first. We would like to do so because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of TAL Education Group, Inc. (NYSE:TAL).

TAL Education Group, Inc. (NYSE:TAL) was in 24 hedge funds’ portfolios at the end of December. TAL has seen a decrease in activity from the world’s largest hedge funds of late. There were 25 hedge funds in our database with TAL positions at the end of the previous quarter. Our calculations also showed that TAL isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Eashwar Krishnan - Tybourne Capital

Let’s take a glance at the recent hedge fund action surrounding TAL Education Group, Inc. (NYSE:TAL).

How are hedge funds trading TAL Education Group, Inc. (NYSE:TAL)?

At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in TAL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TAL

The largest stake in TAL Education Group, Inc. (NYSE:TAL) was held by Tiger Global Management LLC, which reported holding $255.8 million worth of stock at the end of September. It was followed by Tybourne Capital Management with a $218.2 million position. Other investors bullish on the company included Serenity Capital, Yiheng Capital, and Driehaus Capital.

Because TAL Education Group, Inc. (NYSE:TAL) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of fund managers that elected to cut their positions entirely last quarter. At the top of the heap, Lei Zhang’s Hillhouse Capital Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, comprising close to $52 million in stock. Jim Simons’s fund, Renaissance Technologies, also dropped its stock, about $46.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to TAL Education Group, Inc. (NYSE:TAL). We will take a look at Continental Resources, Inc. (NYSE:CLR), NetApp Inc. (NASDAQ:NTAP), Pembina Pipeline Corp (NYSE:PBA), and Fastenal Company (NASDAQ:FAST). This group of stocks’ market values are similar to TAL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLR 36 444729 7
NTAP 21 753911 -6
PBA 14 100099 -3
FAST 25 1016970 2
Average 24 578927 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $579 million. That figure was $858 million in TAL’s case. Continental Resources, Inc. (NYSE:CLR) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 14 bullish hedge fund positions. TAL Education Group, Inc. (NYSE:TAL) 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on TAL as the stock returned 27.5% and outperformed the market as well.

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

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