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Hedge Funds Are Betting On The Toronto-Dominion Bank (TD)

In this article we will take a look at whether hedge funds think The Toronto-Dominion Bank (NYSE:TD) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

The Toronto-Dominion Bank (NYSE:TD) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. TD was in 19 hedge funds’ portfolios at the end of March. There were 17 hedge funds in our database with TD holdings at the end of the previous quarter. Our calculations also showed that TD 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.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the latest hedge fund action regarding The Toronto-Dominion Bank (NYSE:TD).

What have hedge funds been doing with The Toronto-Dominion Bank (NYSE:TD)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in TD 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, Bridgewater Associates held the most valuable stake in The Toronto-Dominion Bank (NYSE:TD), which was worth $24.9 million at the end of the third quarter. On the second spot was Marshall Wace LLP which amassed $23.5 million worth of shares. Heathbridge Capital Management, D E Shaw, and GLG Partners 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 Heathbridge Capital Management allocated the biggest weight to The Toronto-Dominion Bank (NYSE:TD), around 6.19% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, earmarking 0.79 percent of its 13F equity portfolio to TD.

As industrywide interest jumped, some big names have jumped into The Toronto-Dominion Bank (NYSE:TD) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most valuable position in The Toronto-Dominion Bank (NYSE:TD). Marshall Wace LLP had $23.5 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $1.8 million investment in the stock during the quarter. The other funds with brand new TD positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Dmitry Balyasny’s Balyasny Asset Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Toronto-Dominion Bank (NYSE:TD) but similarly valued. These stocks are BHP Group (NYSE:BBL), Fidelity National Information Services Inc. (NYSE:FIS), Diageo plc (NYSE:DEO), and Sony Corporation (NYSE:SNE). This group of stocks’ market valuations are similar to TD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBL 21 802817 -3
FIS 105 8378290 0
DEO 17 621500 0
SNE 28 461322 2
Average 42.75 2565982 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.75 hedge funds with bullish positions and the average amount invested in these stocks was $2566 million. That figure was $154 million in TD’s case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 17 bullish hedge fund positions. The Toronto-Dominion Bank (NYSE:TD) 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 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately TD wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TD investors were disappointed as the stock returned 8.5% during the second quarter 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.

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