Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Toronto-Dominion Bank (NYSE:TD).
Toronto-Dominion Bank (NYSE:TD) was in 15 hedge funds’ portfolios at the end of September. TD investors should pay attention to a decrease in support from the world’s most elite money managers lately. There were 18 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 Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ray Dalio of Bridgewater Associates
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent.Let’s view the recent hedge fund action regarding Toronto-Dominion Bank (NYSE:TD).
How are hedge funds trading Toronto-Dominion Bank (NYSE:TD)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TD over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Toronto-Dominion Bank (NYSE:TD) was held by Renaissance Technologies, which reported holding $92.1 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $46.9 million position. Other investors bullish on the company included Bridgewater Associates, GLG Partners, and D E Shaw. In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to Toronto-Dominion Bank (NYSE:TD), around 1.02% of its 13F portfolio. Bridgewater Associates is also relatively very bullish on the stock, setting aside 0.31 percent of its 13F equity portfolio to TD.
Because Toronto-Dominion Bank (NYSE:TD) has witnessed bearish sentiment from hedge fund managers, we can see that there lies a certain “tier” of hedge funds who sold off their full holdings by the end of the third quarter. Intriguingly, Lee Ainslie’s Maverick Capital cut the biggest investment of all the hedgies tracked by Insider Monkey, worth about $11.7 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dropped its stock, about $3.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Toronto-Dominion Bank (NYSE:TD) but similarly valued. We will take a look at NVIDIA Corporation (NASDAQ:NVDA), Starbucks Corporation (NASDAQ:SBUX), Linde plc (NYSE:LIN), and ASML Holding N.V. (NASDAQ:ASML). This group of stocks’ market valuations resemble TD’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVDA | 48 | 1473439 | 3 |
| SBUX | 52 | 5593793 | 3 |
| LIN | 44 | 2523402 | 3 |
| ASML | 15 | 774677 | 3 |
| Average | 39.75 | 2591328 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.75 hedge funds with bullish positions and the average amount invested in these stocks was $2591 million. That figure was $295 million in TD’s case. Starbucks Corporation (NASDAQ:SBUX) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Toronto-Dominion Bank (NYSE:TD) is even less popular than ASML. Hedge funds dodged a bullet by taking a bearish stance towards TD. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TD investors were disappointed as the stock returned 0.2% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
