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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in TFS Financial Corporation (NASDAQ:TFSL)? The smart money sentiment can provide an answer to this question.
Is TFSL a good stock to buy now? TFS Financial Corporation (NASDAQ:TFSL) was in 9 hedge funds' portfolios at the end of September. The all time high for this statistics is 15. TFSL investors should be aware of a decrease in hedge fund interest in recent months. There were 11 hedge funds in our database with TFSL positions at the end of the second quarter. Our calculations also showed that TFSL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's view the recent hedge fund action encompassing TFS Financial Corporation (NASDAQ:TFSL).
Do Hedge Funds Think TFSL Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TFSL over the last 21 quarters. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in TFS Financial Corporation (NASDAQ:TFSL) was held by Renaissance Technologies, which reported holding $89.7 million worth of stock at the end of September. It was followed by Empyrean Capital Partners with a $22.8 million position. Other investors bullish on the company included AQR Capital Management, Winton Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Empyrean Capital Partners allocated the biggest weight to TFS Financial Corporation (NASDAQ:TFSL), around 0.92% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to TFSL.
Because TFS Financial Corporation (NASDAQ:TFSL) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there were a few fund managers who were dropping their entire stakes last quarter. Intriguingly, Michael Gelband's ExodusPoint Capital cut the biggest position of all the hedgies tracked by Insider Monkey, valued at an estimated $0.6 million in stock. Karim Abbadi and Edward McBride's fund, Centiva Capital, also dumped its stock, about $0.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds last quarter.
Let's check out hedge fund activity in other stocks similar to TFS Financial Corporation (NASDAQ:TFSL). We will take a look at Inovalon Holdings Inc (NASDAQ:INOV), Healthcare Realty Trust Inc (NYSE:HR), SSR Mining Inc. (NASDAQ:SSRM), GoHealth, Inc. (NASDAQ:GOCO), Silgan Holdings Inc. (NASDAQ:SLGN), NeoGenomics, Inc. (NASDAQ:NEO), and Nexstar Media Group, Inc. (NASDAQ:NXST). This group of stocks' market values are similar to TFSL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INOV,20,112024,7 HR,18,166333,-4 SSRM,18,306021,0 GOCO,17,633764,17 SLGN,15,207950,-4 NEO,17,78934,-2 NXST,41,731820,-1 Average,20.9,319549,1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $320 million. That figure was $119 million in TFSL's case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand Silgan Holdings Inc. (NASDAQ:SLGN) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks TFS Financial Corporation (NASDAQ:TFSL) is even less popular than SLGN. Our overall hedge fund sentiment score for TFSL is 21. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on TFSL as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on TFSL as the stock returned 20.4% since Q3 (through December 8th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.