Did Hedge Funds Make The Right Call On Texas Capital Bancshares Inc (TCBI) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Texas Capital Bancshares Inc (NASDAQ:TCBI) and determine whether the smart money was really smart about this stock.

Texas Capital Bancshares Inc (NASDAQ:TCBI) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that TCBI 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Ken Fisher of Fisher Asset Management

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 let’s go over the latest hedge fund action regarding Texas Capital Bancshares Inc (NASDAQ:TCBI).

How are hedge funds trading Texas Capital Bancshares Inc (NASDAQ:TCBI)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from the fourth quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in TCBI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, D. E. Shaw’s D E Shaw has the number one position in Texas Capital Bancshares Inc (NASDAQ:TCBI), worth close to $15 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by Alpine Associates, led by Robert Emil Zoellner, holding a $9.4 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Renaissance Technologies, Ken Fisher’s Fisher Asset Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Spindletop Capital allocated the biggest weight to Texas Capital Bancshares Inc (NASDAQ:TCBI), around 0.61% of its 13F portfolio. Alpine Associates is also relatively very bullish on the stock, setting aside 0.38 percent of its 13F equity portfolio to TCBI.

Due to the fact that Texas Capital Bancshares Inc (NASDAQ:TCBI) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedgies that slashed their entire stakes heading into Q4. Intriguingly, Ken Griffin’s Citadel Investment Group dropped the largest position of all the hedgies tracked by Insider Monkey, totaling about $65.3 million in stock. Andrew Kurita’s fund, Kettle Hill Capital Management, also dumped its stock, about $18.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 7 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Texas Capital Bancshares Inc (NASDAQ:TCBI). These stocks are Scorpio Tankers Inc. (NYSE:STNG), Flagstar Bancorp Inc (NYSE:FBC), Covanta Holding Corporation (NYSE:CVA), and Pacific Premier Bancorp, Inc. (NASDAQ:PPBI). This group of stocks’ market caps match TCBI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STNG 25 87700 -8
FBC 15 66195 -5
CVA 25 55880 6
PPBI 8 30230 -4
Average 18.25 60001 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $52 million in TCBI’s case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) is the least popular one with only 8 bullish hedge fund positions. Texas Capital Bancshares Inc (NASDAQ:TCBI) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 17.1 percentage points. Hedge funds were also right about betting on TCBI as the stock returned 40.4% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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