Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. 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 TPG RE Finance Trust, Inc. (NYSE:TRTX).
Is TPG RE Finance Trust, Inc. (NYSE:TRTX) worth your attention right now? The smart money is getting less optimistic. The number of long hedge fund bets fell by 1 in recent months. Our calculations also showed that TRTX isn’t among the 30 most popular stocks among hedge funds. TRTX was in 9 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 10 hedge funds in our database with TRTX holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s view the new hedge fund action regarding TPG RE Finance Trust, Inc. (NYSE:TRTX).
How are hedge funds trading TPG RE Finance Trust, Inc. (NYSE:TRTX)?
At Q4’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in TRTX a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in TPG RE Finance Trust, Inc. (NYSE:TRTX) was held by Renaissance Technologies, which reported holding $7.4 million worth of stock at the end of December. It was followed by D E Shaw with a $4.9 million position. Other investors bullish on the company included Millennium Management, Alyeska Investment Group, and Citadel Investment Group.
Because TPG RE Finance Trust, Inc. (NYSE:TRTX) has faced declining sentiment from the smart money, we can see that there were a few hedge funds who were dropping their positions entirely heading into Q3. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management dropped the largest position of all the hedgies monitored by Insider Monkey, worth about $4.9 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as TPG RE Finance Trust, Inc. (NYSE:TRTX) but similarly valued. These stocks are Berkshire Hills Bancorp, Inc. (NYSE:BHLB), Casella Waste Systems Inc. (NASDAQ:CWST), ICF International Inc (NASDAQ:ICFI), and Sunrun Inc (NASDAQ:RUN). All of these stocks’ market caps are closest to TRTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BHLB | 11 | 32334 | 3 |
| CWST | 18 | 149744 | 2 |
| ICFI | 17 | 35802 | 1 |
| RUN | 18 | 279156 | 10 |
| Average | 16 | 124259 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $27 million in TRTX’s case. Casella Waste Systems Inc. (NASDAQ:CWST) is the most popular stock in this table. On the other hand Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks TPG RE Finance Trust, Inc. (NYSE:TRTX) is even less popular than BHLB. Hedge funds dodged a bullet by taking a bearish stance towards TRTX. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately TRTX wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); TRTX investors were disappointed as the stock returned 9.4% 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.