TPG Specialty Lending Inc (TSLX): Were Hedge Funds Right About This Stock?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards TPG Specialty Lending Inc (NYSE:TSLX).

Hedge fund interest in TPG Specialty Lending Inc (NYSE:TSLX) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare TSLX to other stocks including First Commonwealth Financial (NYSE:FCF), Boise Cascade Co (NYSE:BCC), and Tennant Company (NYSE:TNC) to get a better sense of its popularity.

Michael Johnston - Steelhead Partners

Michael Johnston of Steelhead Partners

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the recent hedge fund action regarding TPG Specialty Lending Inc (NYSE:TSLX).

How have hedgies been trading TPG Specialty Lending Inc (NYSE:TSLX)?

At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in TSLX a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Is TSLX A Good Stock To Buy?

The largest stake in TPG Specialty Lending Inc (NYSE:TSLX) was held by Arrowstreet Capital, which reported holding $24.1 million worth of stock at the end of September. It was followed by Clough Capital Partners with a $17.9 million position. Other investors bullish on the company included Callodine Capital Management, Gillson Capital, and McKinley Capital Management. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to TPG Specialty Lending Inc (NYSE:TSLX), around 2.25% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, earmarking 1.53 percent of its 13F equity portfolio to TSLX.

Since TPG Specialty Lending Inc (NYSE:TSLX) has faced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedgies that decided to sell off their entire stakes in the third quarter. It’s worth mentioning that Michael Johnston’s Steelhead Partners said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth an estimated $44.9 million in stock. Howard Marks’s fund, Oaktree Capital Management, also dumped its stock, about $12.7 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to TPG Specialty Lending Inc (NYSE:TSLX). We will take a look at First Commonwealth Financial (NYSE:FCF), Boise Cascade Co (NYSE:BCC), Tennant Company (NYSE:TNC), and Safety Insurance Group, Inc. (NASDAQ:SAFT). This group of stocks’ market caps are similar to TSLX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FCF 15 33470 3
BCC 24 77986 9
TNC 11 109526 0
SAFT 15 47499 5
Average 16.25 67120 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $65 million in TSLX’s case. Boise Cascade Co (NYSE:BCC) is the most popular stock in this table. On the other hand Tennant Company (NYSE:TNC) 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 TNC. Hedge funds dodged a bullet by taking a bearish stance towards TSLX. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately TSLX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); TSLX investors were disappointed as the stock returned -22.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.