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Did Hedge Funds Drop The Ball On Tech Data Corp (TECD) ?

Abigail Fisher

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Tech Data Corp (NASDAQ:TECD).

Tech Data Corp (NASDAQ:TECD) shareholders have witnessed an increase in hedge fund interest of late. TECD was in 21 hedge funds' portfolios at the end of the third quarter of 2019. There were 18 hedge funds in our database with TECD holdings at the end of the previous quarter. Our calculations also showed that TECD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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.

[caption id="attachment_26388" align="aligncenter" width="468"] Lee Ainslie of Maverick Capital[/caption]

Lee Ainslie MAVERICK CAPITAL

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a look at the key hedge fund action regarding Tech Data Corp (NASDAQ:TECD).

What have hedge funds been doing with Tech Data Corp (NASDAQ:TECD)?

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TECD over the last 17 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in Tech Data Corp (NASDAQ:TECD). AQR Capital Management has a $196.3 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Lyrical Asset Management, led by Andrew Wellington and Jeff Keswin, holding a $148 million position; 2.2% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism encompass Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Renaissance Technologies and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Birch Run Capital allocated the biggest weight to Tech Data Corp (NASDAQ:TECD), around 2.77% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, designating 2.23 percent of its 13F equity portfolio to TECD.

As one would reasonably expect, key money managers have been driving this bullishness. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, established the most valuable position in Tech Data Corp (NASDAQ:TECD). Voleon Capital had $2.7 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $1.8 million position during the quarter. The other funds with new positions in the stock are Lee Ainslie's Maverick Capital, Mike Vranos's Ellington, and Michael Gelband's ExodusPoint Capital.

Let's go over hedge fund activity in other stocks similar to Tech Data Corp (NASDAQ:TECD). We will take a look at UniFirst Corp (NYSE:UNF), Corelogic Inc (NYSE:CLGX), Coherent, Inc. (NASDAQ:COHR), and Dicks Sporting Goods Inc (NYSE:DKS). This group of stocks' market valuations are closest to TECD's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNF,23,195066,0 CLGX,28,370528,5 COHR,17,227281,-2 DKS,25,472598,2 Average,23.25,316368,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $316 million. That figure was $450 million in TECD's case. Corelogic Inc (NYSE:CLGX) is the most popular stock in this table. On the other hand Coherent, Inc. (NASDAQ:COHR) is the least popular one with only 17 bullish hedge fund positions. Tech Data Corp (NASDAQ:TECD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on TECD as the stock returned 39% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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