How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding TAL Education Group, Inc. (NYSE:TAL).
TAL Education Group, Inc. (NYSE:TAL) was in 25 hedge funds' portfolios at the end of September. TAL has seen a decrease in support from the world's most elite money managers recently. There were 30 hedge funds in our database with TAL positions at the end of the previous quarter. Our calculations also showed that TAL isn't among the 30 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We're going to take a peek at the key hedge fund action surrounding TAL Education Group, Inc. (NYSE:TAL).
Hedge fund activity in TAL Education Group, Inc. (NYSE:TAL)
At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TAL over the last 13 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Tiger Global Management LLC was the largest shareholder of TAL Education Group, Inc. (NYSE:TAL), with a stake worth $300.9 million reported as of the end of September. Trailing Tiger Global Management LLC was Tybourne Capital Management, which amassed a stake valued at $280.8 million. Hillhouse Capital Management, Renaissance Technologies, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since TAL Education Group, Inc. (NYSE:TAL) has faced falling interest from the smart money, we can see that there exists a select few hedgies that decided to sell off their full holdings last quarter. It's worth mentioning that Yi Xin's Ariose Capital cut the largest position of the 700 funds followed by Insider Monkey, valued at close to $36.7 million in stock. Stanley Druckenmiller's fund, Duquesne Capital, also said goodbye to its stock, about $25.1 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as TAL Education Group, Inc. (NYSE:TAL) but similarly valued. We will take a look at Tapestry, Inc. (NYSE:TPR), XPO Logistics Inc (NYSE:XPO), The Liberty SiriusXM Group (NASDAQ:LSXMA), and Gartner Inc (NYSE:IT). All of these stocks' market caps are similar to TAL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TPR,33,862676,8 XPO,44,3385038,-3 LSXMA,39,1604271,1 IT,13,1271736,-8 Average,32.25,1780930,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1.78 billion. That figure was $839 million in TAL's case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Gartner Inc (NYSE:IT) is the least popular one with only 13 bullish hedge fund positions. TAL Education Group, Inc. (NYSE:TAL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard XPO might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.