Hedge Funds Started Piling Into The Stars Group Inc. (TSG) At The Wrong Time

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not The Stars Group Inc. (NASDAQ:TSG) makes for a good investment right now.

The Stars Group Inc. (NASDAQ:TSG) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. TSG was in 45 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 34 hedge funds in our database with TSG holdings at the end of the previous quarter. Our calculations also showed that TSG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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.


Jeffrey Ubben of ValueAct Capital

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. With all of this in mind we’re going to take a glance at the recent hedge fund action surrounding The Stars Group Inc. (NASDAQ:TSG).

What does smart money think about The Stars Group Inc. (NASDAQ:TSG)?

At Q4’s end, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from the previous quarter. On the other hand, there were a total of 40 hedge funds with a bullish position in TSG a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Is TSG A Good Stock To Buy?

Among these funds, ValueAct Capital held the most valuable stake in The Stars Group Inc. (NASDAQ:TSG), which was worth $355.6 million at the end of the third quarter. On the second spot was Tiger Legatus Capital which amassed $139.4 million worth of shares. Odey Asset Management Group, Carlson Capital, and Harbor Spring 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 Cumberland Associates / Springowl Associates allocated the biggest weight to The Stars Group Inc. (NASDAQ:TSG), around 60.28% of its 13F portfolio. Tiger Legatus Capital is also relatively very bullish on the stock, setting aside 57.9 percent of its 13F equity portfolio to TSG.

Consequently, key hedge funds were leading the bulls’ herd. Carlson Capital, managed by Clint Carlson, initiated the biggest position in The Stars Group Inc. (NASDAQ:TSG). Carlson Capital had $96.8 million invested in the company at the end of the quarter. Simon Davies’s Sand Grove Capital Partners also initiated a $60.6 million position during the quarter. The other funds with brand new TSG positions are Alec Litowitz and Ross Laser’s Magnetar Capital, John Bader’s Halcyon Asset Management, and Matthew Halbower’s Pentwater Capital Management.

Let’s also examine hedge fund activity in other stocks similar to The Stars Group Inc. (NASDAQ:TSG). These stocks are Gardner Denver Holdings, Inc. (NYSE:GDI), GCI Liberty, Inc. (NASDAQ:GLIBA), MongoDB, Inc. (NASDAQ:MDB), and Charles River Laboratories International Inc. (NYSE:CRL). All of these stocks’ market caps are closest to TSG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GDI 22 232648 3
GLIBA 47 2304829 10
MDB 32 778851 1
CRL 32 1088526 -1
Average 33.25 1101214 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $1101 million. That figure was $1366 million in TSG’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand Gardner Denver Holdings, Inc. (NYSE:GDI) is the least popular one with only 22 bullish hedge fund positions. The Stars Group Inc. (NASDAQ:TSG) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately TSG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TSG were disappointed as the stock returned -48.8% during the same time period 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 many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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