World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
TAL Education Group (NYSE:TAL) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 25 hedge funds' portfolios at the end of the second quarter of 2019. At the end of this article we will also compare TAL to other stocks including United Airlines Holdings, Inc. (NASDAQ:UAL), Archer-Daniels-Midland Company (NYSE:ADM), and M&T Bank Corporation (NYSE:MTB) to get a better sense of its popularity.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26088" align="aligncenter" width="508"] Chase Coleman of Tiger Global[/caption]
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the latest hedge fund action surrounding TAL Education Group (NYSE:TAL).
How have hedgies been trading TAL Education Group (NYSE:TAL)?
At Q2's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TAL over the last 16 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Tiger Global Management LLC, managed by Chase Coleman, holds the most valuable position in TAL Education Group (NYSE:TAL). Tiger Global Management LLC has a $359.1 million position in the stock, comprising 1.9% of its 13F portfolio. On Tiger Global Management LLC's heels is Eashwar Krishnan of Tybourne Capital Management, with a $306 million position; 10.9% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish encompass Jonathan Guo's Yiheng Capital, Wang Chan's Serenity Capital and Lei Zhang's Hillhouse Capital Management.
Judging by the fact that TAL Education Group (NYSE:TAL) has witnessed falling interest from the smart money, we can see that there was a specific group of fund managers who were dropping their full holdings heading into Q3. At the top of the heap, Run Ye, Junji Takegami and Hoyon Hwang's Tiger Pacific Capital dumped the largest investment of the 750 funds tracked by Insider Monkey, worth close to $23.4 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund said goodbye to about $4.7 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as TAL Education Group (NYSE:TAL) but similarly valued. We will take a look at United Airlines Holdings, Inc. (NASDAQ:UAL), Archer-Daniels-Midland Company (NYSE:ADM), M&T Bank Corporation (NYSE:MTB), and Zoom Video Communications, Inc. (NASDAQ:ZM). This group of stocks' market valuations match TAL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UAL,47,6715542,-2 ADM,26,473693,1 MTB,31,1264574,-5 ZM,32,602810,32 Average,34,2264155,6.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $2264 million. That figure was $1186 million in TAL's case. United Airlines Holdings, Inc. (NASDAQ:UAL) is the most popular stock in this table. On the other hand Archer-Daniels-Midland Company (NYSE:ADM) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks TAL Education Group (NYSE:TAL) is even less popular than ADM. Hedge funds dodged a bullet by taking a bearish stance towards TAL. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TAL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TAL investors were disappointed as the stock returned -10.1% during the third quarter 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 (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.