Hedge Fund Consensus Stocks vs. TransDigm Group Incorporated (TDG) In 2019
Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards TransDigm Group Incorporated (NYSE:TDG) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
TransDigm Group Incorporated (NYSE:TDG) was in 56 hedge funds' portfolios at the end of the third quarter of 2019. TDG shareholders have witnessed an increase in activity from the world's largest hedge funds lately. There were 48 hedge funds in our database with TDG holdings at the end of the previous quarter. Our calculations also showed that TDG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
To most shareholders, hedge funds are assumed to be slow, outdated financial tools of yesteryear. While there are over 8000 funds trading at the moment, Our experts hone in on the moguls of this club, around 750 funds. These investment experts handle bulk of all hedge funds' total asset base, and by monitoring their highest performing equity investments, Insider Monkey has formulated a few investment strategies that have historically outrun Mr. Market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's analyze the key hedge fund action encompassing TransDigm Group Incorporated (NYSE:TDG).
Hedge fund activity in TransDigm Group Incorporated (NYSE:TDG)
At the end of the third quarter, a total of 56 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. By comparison, 48 hedge funds held shares or bullish call options in TDG a year ago. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in TransDigm Group Incorporated (NYSE:TDG) was held by Tiger Global Management, which reported holding $1075.7 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $668.6 million position. Other investors bullish on the company included Stockbridge Partners, Windacre Partnership, and Egerton Capital Limited. In terms of the portfolio weights assigned to each position AltaRock Partners allocated the biggest weight to TransDigm Group Incorporated (NYSE:TDG), around 26.39% of its 13F portfolio. Stockbridge Partners is also relatively very bullish on the stock, designating 23.82 percent of its 13F equity portfolio to TDG.
As aggregate interest increased, specific money managers were breaking ground themselves. Steadfast Capital Management, managed by Robert Pitts, established the largest position in TransDigm Group Incorporated (NYSE:TDG). Steadfast Capital Management had $118.3 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $26.9 million position during the quarter. The following funds were also among the new TDG investors: Ken Griffin's Citadel Investment Group, George Soros's Soros Fund Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as TransDigm Group Incorporated (NYSE:TDG) but similarly valued. We will take a look at Republic Services, Inc. (NYSE:RSG), Chunghwa Telecom Co., Ltd (NYSE:CHT), Eversource Energy (NYSE:ES), and Mercadolibre Inc (NASDAQ:MELI). This group of stocks' market caps are similar to TDG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RSG,31,625488,7 CHT,5,117483,2 ES,19,739026,-2 MELI,45,3156793,-7 Average,25,1159698,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $1160 million. That figure was $5183 million in TDG's case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks TransDigm Group Incorporated (NYSE:TDG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on TDG as the stock returned 84.7% so far in 2019 (through 12/23) 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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