Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze TPG Pace Holdings Corp. (NYSE:TPGH) from the perspective of those elite funds.
TPG Pace Holdings Corp. (NYSE:TPGH) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of the fourth quarter of 2018. At the end of this article we will also compare TPGH to other stocks including DHT Holdings Inc (NYSE:DHT), Establishment Labs Holdings Inc. (NASDAQ:ESTA), and Tristate Capital Holdings Inc (NASDAQ:TSC) to get a better sense of its popularity.
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 32 percentage points since May 2014 through March 12, 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.
Let’s take a look at the key hedge fund action surrounding TPG Pace Holdings Corp. (NYSE:TPGH).
Hedge fund activity in TPG Pace Holdings Corp. (NYSE:TPGH)
At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in TPGH a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings significantly (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 million worth of stock at the end of December. It was followed by Arrowgrass Capital Partners with a $22.9 million position. Other investors bullish on the company included Governors Lane, Alyeska Investment Group, and Glazer Capital.
Seeing as TPG Pace Holdings Corp. (NYSE:TPGH) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds that slashed their positions entirely in the third quarter. Intriguingly, Derek C. Schrier’s Indaba Capital Management said goodbye to the largest position of the 700 funds tracked by Insider Monkey, comprising close to $15.1 million in stock. Jamie Mendola’s fund, Pacific Grove Capital, also said goodbye to its stock, about $6.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
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 DHT Holdings Inc (NYSE:DHT), Establishment Labs Holdings Inc. (NASDAQ:ESTA), Tristate Capital Holdings Inc (NASDAQ:TSC), and Camden National Corporation (NASDAQ:CAC). All of these stocks’ market caps resemble TPGH’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 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $190 million in TPGH’s case. DHT Holdings Inc (NYSE:DHT) is the most popular stock in this table. On the other hand Camden National Corporation (NASDAQ:CAC) is the least popular one with only 6 bullish hedge fund positions. TPG Pace Holdings Corp. (NYSE:TPGH) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately TPGH wasn’t nearly as popular as these 15 stock and hedge funds that were betting on TPGH were disappointed as the stock returned 2.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.