We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Twin River Worldwide Holdings Inc. (NYSE:TRWH).
Twin River Worldwide Holdings Inc. (NYSE:TRWH) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as QEP Resources Inc (NYSE:QEP), Upland Software Inc (NASDAQ:UPLD), and TherapeuticsMD Inc (NASDAQ:TXMD) to gather more data points. Our calculations also showed that TRWH 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.
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' 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.
[caption id="attachment_747408" align="aligncenter" width="473"] Paul Reeder of PAR Capital Management[/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 gander at the fresh hedge fund action encompassing Twin River Worldwide Holdings Inc. (NYSE:TRWH).
How are hedge funds trading Twin River Worldwide Holdings Inc. (NYSE:TRWH)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in TRWH a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Twin River Worldwide Holdings Inc. (NYSE:TRWH) was held by Solus Alternative Asset Management, which reported holding $79.5 million worth of stock at the end of September. It was followed by PAR Capital Management with a $36.9 million position. Other investors bullish on the company included HG Vora Capital Management, Omega Advisors, and Newtyn Management. In terms of the portfolio weights assigned to each position Solus Alternative Asset Management allocated the biggest weight to Twin River Worldwide Holdings Inc. (NYSE:TRWH), around 26.69% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, setting aside 2.84 percent of its 13F equity portfolio to TRWH.
Judging by the fact that Twin River Worldwide Holdings Inc. (NYSE:TRWH) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of fund managers that decided to sell off their full holdings last quarter. Intriguingly, Anthony Joseph Vaccarino's North Fourth Asset Management sold off the biggest stake of the 750 funds followed by Insider Monkey, comprising about $5.1 million in stock, and Karim Abbadi and Edward McBride's Centiva Capital was right behind this move, as the fund dumped about $0.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Twin River Worldwide Holdings Inc. (NYSE:TRWH) but similarly valued. These stocks are QEP Resources Inc (NYSE:QEP), Upland Software Inc (NASDAQ:UPLD), TherapeuticsMD Inc (NASDAQ:TXMD), and Signet Jewelers Limited (NYSE:SIG). This group of stocks' market caps are similar to TRWH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QEP,20,155279,2 UPLD,26,185976,2 TXMD,8,28322,0 SIG,14,135975,-3 Average,17,126388,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $207 million in TRWH's case. Upland Software Inc (NASDAQ:UPLD) is the most popular stock in this table. On the other hand TherapeuticsMD Inc (NASDAQ:TXMD) is the least popular one with only 8 bullish hedge fund positions. Twin River Worldwide Holdings Inc. (NYSE:TRWH) 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 TRWH, though not to the same extent, as the stock returned 6.9% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.