It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Tristate Capital Holdings Inc (NASDAQ:TSC).
Is Tristate Capital Holdings Inc (NASDAQ:TSC) a healthy stock for your portfolio? The best stock pickers are in a bearish mood. The number of bullish hedge fund positions decreased by 3 lately. Our calculations also showed that TSC isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most investors, hedge funds are seen as underperforming, outdated investment tools of years past. While there are greater than 8000 funds trading today, We look at the elite of this group, around 750 funds. It is estimated that this group of investors direct the lion’s share of the hedge fund industry’s total asset base, and by tailing their unrivaled stock picks, Insider Monkey has unsheathed various investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
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. Let’s take a look at the key hedge fund action surrounding Tristate Capital Holdings Inc (NASDAQ:TSC).
Hedge fund activity in Tristate Capital Holdings Inc (NASDAQ:TSC)
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TSC over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the largest position in Tristate Capital Holdings Inc (NASDAQ:TSC), worth close to $18.3 million, amounting to 0.2% of its total 13F portfolio. The second most bullish fund manager is Second Curve Capital, led by Tom Brown, holding a $13.6 million position; 9.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish encompass Renaissance Technologies, Paul Marshall and Ian Wace’s Marshall Wace LLP and John Overdeck and David Siegel’s Two Sigma Advisors.
Seeing as Tristate Capital Holdings Inc (NASDAQ:TSC) has experienced falling interest from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds who were dropping their full holdings in the second quarter. It’s worth mentioning that Richard Driehaus’s Driehaus Capital dropped the biggest position of all the hedgies monitored by Insider Monkey, comprising about $3.7 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dropped about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds in the second quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Tristate Capital Holdings Inc (NASDAQ:TSC) but similarly valued. These stocks are Quanex Building Products Corporation (NYSE:NX), Quotient Limited (NASDAQ:QTNT), HarborOne Bancorp, Inc. (NASDAQ:HONE), and MYR Group Inc (NASDAQ:MYRG). This group of stocks’ market values are closest to TSC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NX | 13 | 51317 | -3 |
| QTNT | 20 | 280265 | 0 |
| HONE | 4 | 11384 | 0 |
| MYRG | 11 | 25997 | -4 |
| Average | 12 | 92241 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $47 million in TSC’s case. Quotient Limited (NASDAQ:QTNT) is the most popular stock in this table. On the other hand HarborOne Bancorp, Inc. (NASDAQ:HONE) is the least popular one with only 4 bullish hedge fund positions. Tristate Capital Holdings Inc (NASDAQ:TSC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TSC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TSC investors were disappointed as the stock returned -1.4% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
