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Hedge Funds Are Dumping Texas Roadhouse Inc (TXRH)

Reymerlyn Martin

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Texas Roadhouse Inc (NASDAQ:TXRH).

Texas Roadhouse Inc (NASDAQ:TXRH) investors should be aware of a decrease in hedge fund sentiment of late. TXRH was in 22 hedge funds' portfolios at the end of September. There were 23 hedge funds in our database with TXRH positions at the end of the previous quarter. Our calculations also showed that TXRH 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

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_221556" align="aligncenter" width="600"] Richard Driehaus of Driehaus Capital[/caption]

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. We're going to review the key hedge fund action surrounding Texas Roadhouse Inc (NASDAQ:TXRH).

How have hedgies been trading Texas Roadhouse Inc (NASDAQ:TXRH)?

Heading into the fourth quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TXRH over the last 17 quarters. 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 Texas Roadhouse Inc (NASDAQ:TXRH) was held by Citadel Investment Group, which reported holding $38.6 million worth of stock at the end of September. It was followed by Millennium Management with a $36.1 million position. Other investors bullish on the company included Marshall Wace, Two Sigma Advisors, and GLG Partners. In terms of the portfolio weights assigned to each position Signition LP allocated the biggest weight to Texas Roadhouse Inc (NASDAQ:TXRH), around 1.36% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.57 percent of its 13F equity portfolio to TXRH.

Since Texas Roadhouse Inc (NASDAQ:TXRH) has experienced falling interest from the smart money, we can see that there lies a certain "tier" of funds that decided to sell off their full holdings by the end of the third quarter. Interestingly, Lee Ainslie's Maverick Capital dropped the largest position of all the hedgies monitored by Insider Monkey, valued at close to $14.4 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund said goodbye to about $10.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Texas Roadhouse Inc (NASDAQ:TXRH) but similarly valued. We will take a look at YPF Sociedad Anonima (NYSE:YPF), Pebblebrook Hotel Trust (NYSE:PEB), Exponent, Inc. (NASDAQ:EXPO), and J&J Snack Foods Corp. (NASDAQ:JJSF). All of these stocks' market caps resemble TXRH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YPF,18,99931,3 PEB,12,104562,-1 EXPO,18,115116,3 JJSF,17,132052,4 Average,16.25,112915,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $226 million in TXRH's case. YPF Sociedad Anonima (NYSE:YPF) is the most popular stock in this table. On the other hand Pebblebrook Hotel Trust (NYSE:PEB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Texas Roadhouse Inc (NASDAQ:TXRH) is more popular among hedge funds. 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. Hedge funds were also right about betting on TXRH, though not to the same extent, as the stock returned 10.2% during the fourth quarter (through the end of November) and outperformed the market as well.

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

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