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Were Hedge Funds Right About Dumping TriNet Group Inc (TNET)?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about TriNet Group Inc (NYSE:TNET).

TriNet Group Inc (NYSE:TNET) was in 18 hedge funds’ portfolios at the end of September. TNET investors should pay attention to a decrease in support from the world’s most elite money managers lately. There were 21 hedge funds in our database with TNET holdings at the end of the previous quarter. Our calculations also showed that TNET isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Managemnet

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the key hedge fund action encompassing TriNet Group Inc (NYSE:TNET).

What does smart money think about TriNet Group Inc (NYSE:TNET)?

At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in TNET over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Cantillon Capital Management held the most valuable stake in TriNet Group Inc (NYSE:TNET), which was worth $256.8 million at the end of the third quarter. On the second spot was Balyasny Asset Management which amassed $23.7 million worth of shares. Harbor Spring Capital, D E Shaw, and Millennium Management 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 Harbor Spring Capital allocated the biggest weight to TriNet Group Inc (NYSE:TNET), around 2.75% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, earmarking 2.5 percent of its 13F equity portfolio to TNET.

Seeing as TriNet Group Inc (NYSE:TNET) has witnessed bearish sentiment from the smart money, logic holds that there was a specific group of funds that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Michael Kahan and Jeremy Kahan’s North Peak Capital dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $13.6 million in stock, and Peter Seuss’s Prana Capital Management was right behind this move, as the fund dropped about $3.6 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as TriNet Group Inc (NYSE:TNET) but similarly valued. These stocks are PacWest Bancorp (NASDAQ:PACW), Aaron’s, Inc. (NYSE:AAN), argenx SE (NASDAQ:ARGX), and Pure Storage, Inc. (NYSE:PSTG). This group of stocks’ market values are closest to TNET’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PACW 23 251367 3
AAN 18 310016 -4
ARGX 24 619897 2
PSTG 32 690528 9
Average 24.25 467952 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $468 million. That figure was $419 million in TNET’s case. Pure Storage, Inc. (NYSE:PSTG) is the most popular stock in this table. On the other hand Aaron’s, Inc. (NYSE:AAN) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks TriNet Group Inc (NYSE:TNET) is even less popular than AAN. Hedge funds dodged a bullet by taking a bearish stance towards TNET. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TNET wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TNET investors were disappointed as the stock returned -12% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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