Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Triumph Bancorp Inc (NASDAQ:TBK).
Is Triumph Bancorp Inc (NASDAQ:TBK) ready to rally soon? Hedge funds were becoming less confident. The number of long hedge fund positions were cut by 2 in recent months. Triumph Bancorp Inc (NASDAQ:TBK) was in 5 hedge funds’ portfolios at the end of September. The all time high for this statistics is 13. Our calculations also showed that TBK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 7 hedge funds in our database with TBK positions at the end of the second quarter.
Video: 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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 stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a look at the recent hedge fund action regarding Triumph Bancorp Inc (NASDAQ:TBK).
What does smart money think about Triumph Bancorp Inc (NASDAQ:TBK)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in TBK a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Driehaus Capital was the largest shareholder of Triumph Bancorp Inc (NASDAQ:TBK), with a stake worth $15.5 million reported as of the end of September. Trailing Driehaus Capital was Forest Hill Capital, which amassed a stake valued at $6.6 million. Royce & Associates, Mendon Capital Advisors, and Second Curve Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Forest Hill Capital allocated the biggest weight to Triumph Bancorp Inc (NASDAQ:TBK), around 3.01% of its 13F portfolio. Mendon Capital Advisors is also relatively very bullish on the stock, dishing out 2.73 percent of its 13F equity portfolio to TBK.
Due to the fact that Triumph Bancorp Inc (NASDAQ:TBK) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of fund managers that elected to cut their entire stakes by the end of the third quarter. Interestingly, Israel Englander’s Millennium Management sold off the biggest position of the 750 funds tracked by Insider Monkey, totaling about $0.4 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund cut about $0.2 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Triumph Bancorp Inc (NASDAQ:TBK) but similarly valued. These stocks are Puxin Limited (NYSE:NEW), Forterra, Inc. (NASDAQ:FRTA), Stock Yards Bancorp, Inc. (NASDAQ:SYBT), Raven Industries, Inc. (NASDAQ:RAVN), Ingles Markets, Incorporated (NASDAQ:IMKTA), Bright Scholar Education Holdings Limited (NYSE:BEDU), and The Gorman-Rupp Company (NYSE:GRC). This group of stocks’ market values are similar to TBK’s market value.
|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 13.1 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $34 million in TBK’s case. Forterra, Inc. (NASDAQ:FRTA) is the most popular stock in this table. On the other hand Puxin Limited (NYSE:NEW) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Triumph Bancorp Inc (NASDAQ:TBK) is even less popular than NEW. Our overall hedge fund sentiment score for TBK is 14.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on TBK 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on TBK as the stock returned 52.8% since Q3 (through November 27th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.