Hedge Funds Are Nibbling On Sixth Street Specialty Lending Inc (TSLX)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Sixth Street Specialty Lending Inc (NYSE:TSLX).

Is Sixth Street Specialty Lending Inc (NYSE:TSLX) a healthy stock for your portfolio? The smart money was betting on the stock. The number of long hedge fund bets went up by 1 lately. Sixth Street Specialty Lending Inc (NYSE:TSLX) was in 10 hedge funds’ portfolios at the end of June. The all time high for this statistic is 15. Our calculations also showed that TSLX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let’s analyze the recent hedge fund action encompassing Sixth Street Specialty Lending Inc (NYSE:TSLX).

Do Hedge Funds Think TSLX Is A Good Stock To Buy Now?

At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TSLX over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Sixth Street Specialty Lending Inc (NYSE:TSLX) was held by Arrowstreet Capital, which reported holding $41.3 million worth of stock at the end of June. It was followed by Two Sigma Advisors with a $9.1 million position. Other investors bullish on the company included Callodine Capital Management, Citadel Investment Group, and D E Shaw. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to Sixth Street Specialty Lending Inc (NYSE:TSLX), around 3.35% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, earmarking 0.34 percent of its 13F equity portfolio to TSLX.

As one would reasonably expect, key money managers have jumped into Sixth Street Specialty Lending Inc (NYSE:TSLX) headfirst. Caxton Associates LP, managed by Bruce Kovner, established the biggest position in Sixth Street Specialty Lending Inc (NYSE:TSLX). Caxton Associates LP had $0.3 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.2 million position during the quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sixth Street Specialty Lending Inc (NYSE:TSLX) but similarly valued. These stocks are Northwest Natural Holding Company (NYSE:NWN), Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY), AppHarvest, Inc. (NASDAQ:APPH), Zymeworks Inc. (NYSE:ZYME), Enerpac Tool Group Corp. (NYSE:EPAC), Pulmonx Corporation (NASDAQ:LUNG), and Usa Compression Partners LP (NYSE:USAC). All of these stocks’ market caps match TSLX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWN 11 14194 1
HRMY 15 173932 5
APPH 15 273043 -6
ZYME 19 459937 -8
EPAC 7 117733 0
LUNG 20 264933 -7
USAC 3 6103 1
Average 12.9 187125 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $187 million. That figure was $94 million in TSLX’s case. Pulmonx Corporation (NASDAQ:LUNG) is the most popular stock in this table. On the other hand Usa Compression Partners LP (NYSE:USAC) is the least popular one with only 3 bullish hedge fund positions. Sixth Street Specialty Lending Inc (NYSE:TSLX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TSLX is 46.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and surpassed the market again by 6.2 percentage points. Unfortunately TSLX wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TSLX investors were disappointed as the stock returned 3% since the end of June (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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