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Here’s What Hedge Funds Think About TPG Specialty Lending Inc (TSLX)

Abigail Fisher

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 9 percentage points since the end of the third quarter of 2018 as investors worried over the possible ramifications of rising interest rates and escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of TPG Specialty Lending Inc (NYSE:TSLX) and see how the stock is affected by the recent hedge fund activity.

TPG Specialty Lending Inc (NYSE:TSLX) was in 12 hedge funds' portfolios at the end of the first quarter of 2019. TSLX shareholders have witnessed an increase in hedge fund interest of late. There were 10 hedge funds in our database with TSLX holdings at the end of the previous quarter. Our calculations also showed that TSLX isn't among the 30 most popular stocks among hedge funds.

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 40 percentage points since May 2014 through May 30, 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.

Jeffrey Talpins Element Capital

Let's check out the recent hedge fund action regarding TPG Specialty Lending Inc (NYSE:TSLX).

How are hedge funds trading TPG Specialty Lending Inc (NYSE:TSLX)?

At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the fourth quarter of 2018. By comparison, 15 hedge funds held shares or bullish call options in TSLX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

TSLX_june2019

Among these funds, Millennium Management held the most valuable stake in TPG Specialty Lending Inc (NYSE:TSLX), which was worth $14.4 million at the end of the first quarter. On the second spot was Marshall Wace LLP which amassed $13.3 million worth of shares. Moreover, Clough Capital Partners, Arrowstreet Capital, and Element Capital Management were also bullish on TPG Specialty Lending Inc (NYSE:TSLX), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, key money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in TPG Specialty Lending Inc (NYSE:TSLX). Arrowstreet Capital had $8.3 million invested in the company at the end of the quarter. Jeffrey Talpins's Element Capital Management also made a $7.2 million investment in the stock during the quarter. The only other fund with a brand new TSLX position is John Overdeck and David Siegel's Two Sigma Advisors.

Let's check out hedge fund activity in other stocks similar to TPG Specialty Lending Inc (NYSE:TSLX). These stocks are Industrial Logistics Properties Trust (NASDAQ:ILPT), Clovis Oncology Inc (NASDAQ:CLVS), Fresh Del Monte Produce Inc (NYSE:FDP), and Getty Realty Corp. (NYSE:GTY). All of these stocks' market caps resemble TSLX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ILPT,16,181029,-3 CLVS,29,567447,5 FDP,14,43087,-1 GTY,9,89875,1 Average,17,220360,0.5 [/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 $220 million. That figure was $76 million in TSLX's case. Clovis Oncology Inc (NASDAQ:CLVS) is the most popular stock in this table. On the other hand Getty Realty Corp. (NYSE:GTY) is the least popular one with only 9 bullish hedge fund positions. TPG Specialty Lending Inc (NYSE:TSLX) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately TSLX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TSLX investors were disappointed as the stock returned 3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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