Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Is TPG Pace Holdings Corp. (NYSE:TPGH) going to take off soon? Money managers are becoming more confident. The number of bullish hedge fund bets increased by 1 in recent months. Our calculations also showed that TPGH isn’t among the 30 most popular stocks among hedge funds. TPGH was in 18 hedge funds’ portfolios at the end of March. There were 17 hedge funds in our database with TPGH holdings at the end of the previous quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.
Let’s take a peek at the latest hedge fund action surrounding TPG Pace Holdings Corp. (NYSE:TPGH).
What have hedge funds been doing with TPG Pace Holdings Corp. (NYSE:TPGH)?
Heading into the second quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in TPGH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in TPG Pace Holdings Corp. (NYSE:TPGH) was held by Highbridge Capital Management, which reported holding $25.6 million worth of stock at the end of March. It was followed by Arrowgrass Capital Partners with a $23.4 million position. Other investors bullish on the company included Governors Lane, Alyeska Investment Group, and Glazer Capital.
As one would reasonably expect, key money managers have been driving this bullishness. Pacific Grove Capital, managed by Jamie Mendola, initiated the biggest position in TPG Pace Holdings Corp. (NYSE:TPGH). Pacific Grove Capital had $2 million invested in the company at the end of the quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as TPG Pace Holdings Corp. (NYSE:TPGH) but similarly valued. We will take a look at istar Inc (NYSE:STAR), Barrett Business Services, Inc. (NASDAQ:BBSI), MeiraGTx Holdings plc (NASDAQ:MGTX), and First Defiance Financial Corp. (NASDAQ:FDEF). This group of stocks’ market caps resemble TPGH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STAR | 9 | 49070 | 1 |
| BBSI | 13 | 87338 | 0 |
| MGTX | 11 | 170238 | 4 |
| FDEF | 9 | 33709 | 2 |
| Average | 10.5 | 85089 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $197 million in TPGH’s case. Barrett Business Services, Inc. (NASDAQ:BBSI) is the most popular stock in this table. On the other hand istar Inc (NYSE:STAR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks TPG Pace Holdings Corp. (NYSE:TPGH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on TPGH, though not to the same extent, as the stock returned 1.7% during the same period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
