You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Is TPG Specialty Lending Inc (NYSE:TSLX) going to take off soon? Money managers are getting less optimistic. The number of bullish hedge fund positions retreated by 2 lately. Our calculations also showed that TSLX isn’t among the 30 most popular stocks among hedge funds (see the video below). TSLX was in 10 hedge funds’ portfolios at the end of the second quarter of 2019. There were 12 hedge funds in our database with TSLX positions at the end of the previous quarter.
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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the latest hedge fund action encompassing TPG Specialty Lending Inc (NYSE:TSLX).
How have hedgies been trading TPG Specialty Lending Inc (NYSE:TSLX)?
Heading into the third quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in TSLX a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in TPG Specialty Lending Inc (NYSE:TSLX). Arrowstreet Capital has a $18.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Clough Capital Partners, led by Charles Clough, holding a $15.3 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions encompass Paul Marshall and Ian Wace’s Marshall Wace LLP, Israel Englander’s Millennium Management and Daniel Johnson’s Gillson Capital.
Judging by the fact that TPG Specialty Lending Inc (NYSE:TSLX) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there were a few hedge funds who were dropping their full holdings heading into Q3. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, valued at an estimated $0.4 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also cut its stock, about $0.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to TPG Specialty Lending Inc (NYSE:TSLX). We will take a look at S&T Bancorp, Inc. (NASDAQ:STBA), Monmouth Real Estate Investment Corporation (NYSE:MNR), Hudson Ltd. (NYSE:HUD), and Sangamo Therapeutics, Inc. (NASDAQ:SGMO). This group of stocks’ market valuations match TSLX’s market valuation.
|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 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $61 million in TSLX’s case. Sangamo Therapeutics, Inc. (NASDAQ:SGMO) is the most popular stock in this table. On the other hand S&T Bancorp, Inc. (NASDAQ:STBA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks TPG Specialty Lending Inc (NYSE:TSLX) is even less popular than STBA. Hedge funds clearly dropped the ball on TSLX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on TSLX as the stock returned 9.3% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.