It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. 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 TCF Financial Corporation (NYSE:TCF).
Is TCF Financial Corporation (NYSE:TCF) a marvelous investment now? Hedge funds are selling. The number of bullish hedge fund positions decreased by 1 lately. Our calculations also showed that tcf isn't among the 30 most popular stocks among hedge funds. TCF was in 23 hedge funds' portfolios at the end of December. There were 24 hedge funds in our database with TCF holdings at the end of the previous quarter.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let's view the recent hedge fund action regarding TCF Financial Corporation (NYSE:TCF).
Hedge fund activity in TCF Financial Corporation (NYSE:TCF)
At Q4's end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in TCF over the last 14 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of TCF Financial Corporation (NYSE:TCF), with a stake worth $49.9 million reported as of the end of September. Trailing Millennium Management was Citadel Investment Group, which amassed a stake valued at $44.7 million. Balyasny Asset Management, Pzena Investment Management, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as TCF Financial Corporation (NYSE:TCF) has experienced declining sentiment from hedge fund managers, it's safe to say that there is a sect of hedge funds who were dropping their entire stakes last quarter. Interestingly, Matthew Tewksbury's Stevens Capital Management sold off the biggest position of all the hedgies monitored by Insider Monkey, totaling close to $0.9 million in stock. Jeffrey Talpins's fund, Element Capital Management, also dropped its stock, about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to TCF Financial Corporation (NYSE:TCF). These stocks are RBC Bearings Incorporated (NASDAQ:ROLL), Lumentum Holdings Inc (NASDAQ:LITE), United States Steel Corporation (NYSE:X), and Viper Energy Partners LP (NASDAQ:VNOM). All of these stocks' market caps match TCF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROLL,6,48158,-1 LITE,31,214753,-2 X,24,374333,-8 VNOM,10,49481,-2 Average,17.75,171681,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $265 million in TCF's case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 6 bullish hedge fund positions. TCF Financial Corporation (NYSE:TCF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately TCF wasn't nearly as popular as these 15 stock and hedge funds that were betting on TCF were disappointed as the stock returned 11% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.