It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in TransUnion (NYSE:TRU).
Is TransUnion (NYSE:TRU) a worthy investment now? The best stock pickers are in an optimistic mood. The number of bullish hedge fund positions improved by 4 lately. Our calculations also showed that TRU 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). TRU was in 34 hedge funds' portfolios at the end of the third quarter of 2019. There were 30 hedge funds in our database with TRU holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_258236" align="alignnone" width="600"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. Now let's take a look at the fresh hedge fund action regarding TransUnion (NYSE:TRU).
Hedge fund activity in TransUnion (NYSE:TRU)
Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in TRU a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in TransUnion (NYSE:TRU), which was worth $226.9 million at the end of the third quarter. On the second spot was BlueSpruce Investments which amassed $132.6 million worth of shares. D E Shaw, Farallon Capital, and Marshall Wace were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lansing Management allocated the biggest weight to TransUnion (NYSE:TRU), around 17.48% of its 13F portfolio. Bodenholm Capital is also relatively very bullish on the stock, setting aside 12 percent of its 13F equity portfolio to TRU.
As one would reasonably expect, specific money managers were leading the bulls' herd. Columbus Circle Investors, managed by Principal Global Investors, created the most valuable position in TransUnion (NYSE:TRU). Columbus Circle Investors had $32 million invested in the company at the end of the quarter. Philippe Laffont's Coatue Management also made a $9.5 million investment in the stock during the quarter. The following funds were also among the new TRU investors: Joel Greenblatt's Gotham Asset Management, Donald Sussman's Paloma Partners, and Lee Ainslie's Maverick Capital.
Let's now take a look at hedge fund activity in other stocks similar to TransUnion (NYSE:TRU). We will take a look at PagSeguro Digital Ltd. (NYSE:PAGS), CenterPoint Energy, Inc. (NYSE:CNP), Magellan Midstream Partners, L.P. (NYSE:MMP), and Celanese Corporation (NYSE:CE). This group of stocks' market caps match TRU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAGS,35,1381252,5 CNP,27,1089888,-2 MMP,12,55553,2 CE,18,944524,-2 Average,23,867804,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $868 million. That figure was $1041 million in TRU's case. PagSeguro Digital Ltd. (NYSE:PAGS) is the most popular stock in this table. On the other hand Magellan Midstream Partners, L.P. (NYSE:MMP) is the least popular one with only 12 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 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 TRU as the stock returned 51.2% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness. 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.