We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether TAL Education Group, Inc. (NYSE:TAL) 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.
TAL Education Group, Inc. (NYSE:TAL) has seen an increase in support from the world’s most elite money managers recently. TAL was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 21 hedge funds in our database with TAL positions at the end of the previous quarter. Our calculations also showed that TAL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the recent hedge fund action encompassing TAL Education Group, Inc. (NYSE:TAL).
What does smart money think about TAL Education Group, Inc. (NYSE:TAL)?
At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the third quarter of 2019. By comparison, 24 hedge funds held shares or bullish call options in TAL a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Hillhouse Capital Management held the most valuable stake in TAL Education Group, Inc. (NYSE:TAL), which was worth $552.6 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $277.8 million worth of shares. Tybourne Capital Management, Yiheng Capital, and Serenity Capital 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 Serenity Capital allocated the biggest weight to TAL Education Group, Inc. (NYSE:TAL), around 39.72% of its 13F portfolio. Ariose Capital is also relatively very bullish on the stock, setting aside 28.91 percent of its 13F equity portfolio to TAL.
As aggregate interest increased, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the biggest position in TAL Education Group, Inc. (NYSE:TAL). Point72 Asset Management had $37.3 million invested in the company at the end of the quarter. Pasco Alfaro / Richard Tumure’s Miura Global Management also made a $26.3 million investment in the stock during the quarter. The other funds with brand new TAL positions are Run Ye, Junji Takegami and Hoyon Hwang’s Tiger Pacific Capital, Yi Xin’s Ariose Capital, and Leung Chi Kit’s Kadensa Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as TAL Education Group, Inc. (NYSE:TAL) but similarly valued. These stocks are T. Rowe Price Group, Inc. (NASDAQ:TROW), Mercadolibre Inc (NASDAQ:MELI), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), and KLA Corporation (NASDAQ:KLAC). All of these stocks’ market caps are closest to TAL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $984 million. That figure was $1805 million in TAL’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 8 bullish hedge fund positions. TAL Education Group, Inc. (NYSE:TAL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. Hedge funds were also right about betting on TAL as the stock returned 11.3% during the first quarter (through March 11th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.