Were Hedge Funds Right About Piling Into The TJX Companies, Inc. (TJX)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. 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 we look at how hedge funds traded The TJX Companies, Inc. (NYSE:TJX) and determine whether the smart money was really smart about this stock.

The TJX Companies, Inc. (NYSE:TJX) was in 69 hedge funds’ portfolios at the end of the first quarter of 2020. TJX investors should be aware of an increase in hedge fund sentiment in recent months. There were 57 hedge funds in our database with TJX positions at the end of the previous quarter. Our calculations also showed that TJX 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.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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. Now we’re going to review the recent hedge fund action surrounding The TJX Companies, Inc. (NYSE:TJX).

Hedge fund activity in The TJX Companies, Inc. (NYSE:TJX)

At Q1’s end, a total of 69 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from one quarter earlier. By comparison, 54 hedge funds held shares or bullish call options in TJX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The TJX Companies, Inc. (NYSE:TJX) was held by Diamond Hill Capital, which reported holding $258.3 million worth of stock at the end of September. It was followed by D E Shaw with a $228.6 million position. Other investors bullish on the company included Citadel Investment Group, Adage Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Rip Road Capital allocated the biggest weight to The TJX Companies, Inc. (NYSE:TJX), around 5.79% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, earmarking 4.3 percent of its 13F equity portfolio to TJX.

As one would reasonably expect, key hedge funds were breaking ground themselves. Candlestick Capital Management, managed by Jack Woodruff, established the most outsized position in The TJX Companies, Inc. (NYSE:TJX). Candlestick Capital Management had $83 million invested in the company at the end of the quarter. Robert Joseph Caruso’s Select Equity Group also initiated a $56.3 million position during the quarter. The other funds with brand new TJX positions are Aaron Cowen’s Suvretta Capital Management, Robert Pohly’s Samlyn Capital, and Steve Cohen’s Point72 Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The TJX Companies, Inc. (NYSE:TJX) but similarly valued. We will take a look at Anthem Inc (NYSE:ANTM), The Estee Lauder Companies Inc (NYSE:EL), The Southern Company (NYSE:SO), and Colgate-Palmolive Company (NYSE:CL). This group of stocks’ market caps match TJX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ANTM 70 3549888 -1
EL 44 1074094 -6
SO 33 810355 3
CL 53 1865405 1
Average 50 1824936 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 50 hedge funds with bullish positions and the average amount invested in these stocks was $1825 million. That figure was $1966 million in TJX’s case. Anthem Inc (NYSE:ANTM) is the most popular stock in this table. On the other hand The Southern Company (NYSE:SO) is the least popular one with only 33 bullish hedge fund positions. The TJX Companies, Inc. (NYSE:TJX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately TJX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TJX were disappointed as the stock returned 6.4% 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 many of these stocks already outperformed the market so far this year.

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