How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding TriNet Group Inc (NYSE:TNET) and determine whether hedge funds had an edge regarding this stock.
TriNet Group Inc (NYSE:TNET) has seen an increase in hedge fund sentiment in recent months. TriNet Group Inc (NYSE:TNET) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 27. Our calculations also showed that TNET isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
If you'd ask most shareholders, hedge funds are perceived as underperforming, old financial vehicles of years past. While there are more than 8000 funds in operation at present, Our researchers choose to focus on the aristocrats of this club, around 850 funds. These hedge fund managers command bulk of the smart money's total asset base, and by keeping an eye on their first-class stock picks, Insider Monkey has deciphered numerous investment strategies that have historically outperformed the broader indices. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Lee Ainslie of Maverick Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a look at the recent hedge fund action regarding TriNet Group Inc (NYSE:TNET).
How are hedge funds trading TriNet Group Inc (NYSE:TNET)?
At second quarter's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TNET over the last 20 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in TriNet Group Inc (NYSE:TNET) was held by Cantillon Capital Management, which reported holding $247.7 million worth of stock at the end of September. It was followed by Harbor Spring Capital with a $53.6 million position. Other investors bullish on the company included Two Sigma Advisors, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position Harbor Spring Capital allocated the biggest weight to TriNet Group Inc (NYSE:TNET), around 5.56% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, designating 2.15 percent of its 13F equity portfolio to TNET.
Consequently, key money managers have been driving this bullishness. Renaissance Technologies, initiated the most outsized position in TriNet Group Inc (NYSE:TNET). Renaissance Technologies had $5.4 million invested in the company at the end of the quarter. Lee Ainslie's Maverick Capital also initiated a $1.5 million position during the quarter. The other funds with new positions in the stock are Peter Muller's PDT Partners, Peter Algert and Kevin Coldiron's Algert Coldiron Investors, and Hoon Kim's Quantinno Capital.
Let's now review hedge fund activity in other stocks similar to TriNet Group Inc (NYSE:TNET). We will take a look at SelectQuote, Inc. (NYSE:SLQT), HUYA Inc. (NYSE:HUYA), Toll Brothers Inc (NYSE:TOL), Essent Group Ltd (NYSE:ESNT), ONE Gas Inc (NYSE:OGS), Nevro Corp (NYSE:NVRO), and Cameco Corporation (NYSE:CCJ). This group of stocks' market values are closest to TNET's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLQT,29,289573,29 HUYA,21,346427,3 TOL,39,428011,19 ESNT,29,260562,3 OGS,20,32804,4 NVRO,35,757082,4 CCJ,22,321965,-2 Average,27.9,348061,8.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $348 million. That figure was $339 million in TNET's case. Toll Brothers Inc (NYSE:TOL) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 20 bullish hedge fund positions. TriNet Group Inc (NYSE:TNET) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TNET is 33. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately TNET wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TNET investors were disappointed as the stock returned -2.7% in the third quarter 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 in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.