Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is TravelCenters of America LLC (NASDAQ:TA) the right investment to pursue these days? Hedge funds are betting on the stock. The number of bullish hedge fund bets went up by 2 lately. Our calculations also showed that ta isn’t among the 30 most popular stocks among hedge funds. TA was in 9 hedge funds’ portfolios at the end of March. There were 7 hedge funds in our database with TA positions at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
We’re going to check out the key hedge fund action regarding TravelCenters of America LLC (NASDAQ:TA).
What have hedge funds been doing with TravelCenters of America LLC (NASDAQ:TA)?
At Q1’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in TA a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Jim Simons’s Renaissance Technologies has the biggest position in TravelCenters of America LLC (NASDAQ:TA), worth close to $7.7 million, corresponding to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Wilmot B. Harkey and Daniel Mack of Nantahala Capital Management, with a $3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish include Eric Singer’s VIEX Capital Advisors, John Overdeck and David Siegel’s Two Sigma Advisors and Youlia Miteva’s Proxima Capital Management.
Now, specific money managers have been driving this bullishness. VIEX Capital Advisors, managed by Eric Singer, established the largest position in TravelCenters of America LLC (NASDAQ:TA). VIEX Capital Advisors had $1.6 million invested in the company at the end of the quarter. Youlia Miteva’s Proxima Capital Management also initiated a $0.7 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ken Griffin’s Citadel Investment Group, and Ken Griffin’s Citadel Investment Group.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as TravelCenters of America LLC (NASDAQ:TA) but similarly valued. These stocks are First Financial Northwest, Inc. (NASDAQ:FFNW), Bridgepoint Education Inc (NYSE:BPI), Pieris Pharmaceuticals, Inc. (NASDAQ:PIRS), and Goodrich Petroleum Corporation (NYSE:GDP). This group of stocks’ market caps are closest to TA’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 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $15 million in TA’s case. Bridgepoint Education Inc (NYSE:BPI) is the most popular stock in this table. On the other hand First Financial Northwest, Inc.(NASDAQ:FFNW) is the least popular one with only 3 bullish hedge fund positions. TravelCenters of America LLC (NASDAQ:TA) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately TA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TA investors were disappointed as the stock returned -12.2% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.