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Did Hedge Funds Make The Right Call On TCF Financial Corporation (TCF) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards TCF Financial Corporation (NYSE:TCF) at the end of the first quarter and determine whether the smart money was really smart about this stock.

TCF Financial Corporation (NYSE:TCF) investors should be aware of a decrease in hedge fund sentiment of late. TCF was in 19 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with TCF holdings at the end of the previous quarter. Our calculations also showed that TCF 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.

Today there are plenty of methods investors can use to appraise their holdings. A couple of the best methods are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the top investment managers can outperform the broader indices by a significant margin (see the details here).

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to view the recent hedge fund action surrounding TCF Financial Corporation (NYSE:TCF).

How have hedgies been trading TCF Financial Corporation (NYSE:TCF)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in TCF a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is TCF A Good Stock To Buy?

Among these funds, Pzena Investment Management held the most valuable stake in TCF Financial Corporation (NYSE:TCF), which was worth $23.5 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $18.8 million worth of shares. Balyasny Asset Management, Holocene Advisors, and Castine Capital 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 Tegean Capital Management allocated the biggest weight to TCF Financial Corporation (NYSE:TCF), around 10.27% of its 13F portfolio. Castine Capital Management is also relatively very bullish on the stock, designating 4.23 percent of its 13F equity portfolio to TCF.

Seeing as TCF Financial Corporation (NYSE:TCF) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedge funds that elected to cut their entire stakes in the first quarter. Interestingly, Usman Waheed’s Strycker View Capital said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, valued at close to $15.4 million in stock, and Ravi Chopra’s Azora Capital was right behind this move, as the fund said goodbye to about $10.9 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as TCF Financial Corporation (NYSE:TCF) but similarly valued. These stocks are Emcor Group Inc (NYSE:EME), Ormat Technologies, Inc. (NYSE:ORA), Schneider National, Inc. (NYSE:SNDR), and Enstar Group Ltd. (NASDAQ:ESGR). This group of stocks’ market values match TCF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EME 24 201184 -5
ORA 9 164907 -7
SNDR 22 66577 0
ESGR 11 339675 -2
Average 16.5 193086 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $101 million in TCF’s case. Emcor Group Inc (NYSE:EME) is the most popular stock in this table. On the other hand Ormat Technologies, Inc. (NYSE:ORA) is the least popular one with only 9 bullish hedge fund positions. TCF Financial Corporation (NYSE:TCF) 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately TCF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TCF were disappointed as the stock returned 23.9% 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.