Were Hedge Funds Right About Flocking Into Tech Data Corp (TECD)?

“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Tech Data Corp (NASDAQ:TECD) and see how it was affected.

Is Tech Data Corp (NASDAQ:TECD) an outstanding stock to buy now? Prominent investors are getting more bullish. The number of bullish hedge fund positions improved by 3 in recent months. Our calculations also showed that tecd isn’t among the 30 most popular stocks among hedge funds. TECD was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 20 hedge funds in our database with TECD positions at the end of the previous quarter.

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’ 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 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 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.

Ken Griffin

Let’s view the latest hedge fund action surrounding Tech Data Corp (NASDAQ:TECD).

How are hedge funds trading Tech Data Corp (NASDAQ:TECD)?

Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in TECD a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds With TECD Positions

Among these funds, AQR Capital Management held the most valuable stake in Tech Data Corp (NASDAQ:TECD), which was worth $115.3 million at the end of the third quarter. On the second spot was GLG Partners which amassed $21.3 million worth of shares. Moreover, Two Sigma Advisors, Millennium Management, and Citadel Investment Group were also bullish on Tech Data Corp (NASDAQ:TECD), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, key money managers have jumped into Tech Data Corp (NASDAQ:TECD) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Tech Data Corp (NASDAQ:TECD). Balyasny Asset Management had $1.2 million invested in the company at the end of the quarter. George Zweig, Shane Haas and Ravi Chander’s Signition LP also made a $1.1 million investment in the stock during the quarter. The other funds with brand new TECD positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Minhua Zhang’s Weld Capital Management, and D. E. Shaw’s D E Shaw.

Let’s now review hedge fund activity in other stocks similar to Tech Data Corp (NASDAQ:TECD). These stocks are Proto Labs Inc (NYSE:PRLB), Aaron’s, Inc. (NYSE:AAN), Centennial Resource Development, Inc. (NASDAQ:CDEV), and UMB Financial Corporation (NASDAQ:UMBF). This group of stocks’ market valuations resemble TECD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRLB 10 20643 5
AAN 21 186605 3
CDEV 14 137178 -7
UMBF 11 49606 0
Average 14 98508 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $192 million in TECD’s case. Aaron’s, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Tech Data Corp (NASDAQ:TECD) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on TECD as the stock returned 27.5% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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