Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. 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 Tompkins Financial Corporation (NYSE:TMP).
Tompkins Financial Corporation (NYSE:TMP) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of June. At the end of this article we will also compare TMP to other stocks including 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), Aerie Pharmaceuticals Inc (NASDAQ:AERI), and The E.W. Scripps Company (NASDAQ:SSP) to get a better sense of its popularity. Our calculations also showed that TMP isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. We're going to take a look at the fresh hedge fund action surrounding Tompkins Financial Corporation (NYSE:TMP).
How have hedgies been trading Tompkins Financial Corporation (NYSE:TMP)?
At Q2's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. On the other hand, there were a total of 6 hedge funds with a bullish position in TMP a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Tompkins Financial Corporation (NYSE:TMP), with a stake worth $17.4 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $1.7 million. PEAK6 Capital Management, Laurion Capital Management, and PDT Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Tompkins Financial Corporation (NYSE:TMP) has experienced falling interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of fund managers that elected to cut their positions entirely heading into Q3. It's worth mentioning that Cliff Asness's AQR Capital Management dropped the largest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $0.4 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also dumped its stock, about $0 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Tompkins Financial Corporation (NYSE:TMP) but similarly valued. These stocks are 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), Aerie Pharmaceuticals Inc (NASDAQ:AERI), The E.W. Scripps Company (NASDAQ:SSP), and Kornit Digital Ltd. (NASDAQ:KRNT). This group of stocks' market values match TMP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FLWS,21,85775,2 AERI,18,328780,-5 SSP,17,152520,-8 KRNT,13,57228,3 Average,17.25,156076,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $20 million in TMP's case. 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) is the most popular stock in this table. On the other hand Kornit Digital Ltd. (NASDAQ:KRNT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Tompkins Financial Corporation (NYSE:TMP) is even less popular than KRNT. Hedge funds dodged a bullet by taking a bearish stance towards TMP. 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 TMP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TMP investors were disappointed as the stock returned 0% 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 among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.