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Were Hedge Funds Right About Flocking Into TransUnion (TRU)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtTransUnion (NYSE:TRU) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

TransUnion (NYSE:TRU) has experienced an increase in activity from the world’s largest hedge funds of late. TRU was in 44 hedge funds’ portfolios at the end of the first quarter of 2020. There were 37 hedge funds in our database with TRU holdings at the end of the previous quarter. Our calculations also showed that TRU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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’ 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 58 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the new hedge fund action surrounding TransUnion (NYSE:TRU).

How have hedgies been trading TransUnion (NYSE:TRU)?

Heading into the second quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TRU over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the most valuable position in TransUnion (NYSE:TRU), worth close to $180.2 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Farallon Capital, holding a $133.9 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish contain D. E. Shaw’s D E Shaw, Paul Marshall and Ian Wace’s Marshall Wace LLP and Panayotis Takis Sparaggis’s Alkeon Capital Management. In terms of the portfolio weights assigned to each position Lansing Management allocated the biggest weight to TransUnion (NYSE:TRU), around 17.69% of its 13F portfolio. BlueMar Capital Management is also relatively very bullish on the stock, setting aside 5.21 percent of its 13F equity portfolio to TRU.

Now, key hedge funds have jumped into TransUnion (NYSE:TRU) headfirst. Bloom Tree Partners, managed by Alok Agrawal, assembled the biggest position in TransUnion (NYSE:TRU). Bloom Tree Partners had $30.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $28.4 million investment in the stock during the quarter. The other funds with brand new TRU positions are Phill Gross and Robert Atchinson’s Adage Capital Management, Anand Parekh’s Alyeska Investment Group, and Mikal Patel’s Oribel Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as TransUnion (NYSE:TRU) but similarly valued. We will take a look at Evergy, Inc. (NYSE:EVRG), D.R. Horton, Inc. (NYSE:DHI), Western Digital Corporation (NASDAQ:WDC), and Extra Space Storage, Inc. (NYSE:EXR). This group of stocks’ market values resemble TRU’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EVRG 30 757141 5
DHI 65 1265515 14
WDC 45 560147 -4
EXR 16 186130 -12
Average 39 692233 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $692 million. That figure was $895 million in TRU’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Extra Space Storage, Inc. (NYSE:EXR) is the least popular one with only 16 bullish hedge fund positions. TransUnion (NYSE:TRU) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on TRU as the stock returned 31.6% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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