How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Triumph Bancorp Inc (NASDAQ:TBK).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a glance at the new hedge fund action surrounding Triumph Bancorp Inc (NASDAQ:TBK).
Hedge fund activity in Triumph Bancorp Inc (NASDAQ:TBK)
At the end of the fourth quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in TBK a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Mendon Capital Advisors was the largest shareholder of Triumph Bancorp Inc (NASDAQ:TBK), with a stake worth $42.8 million reported as of the end of December. Trailing Mendon Capital Advisors was Forest Hill Capital, which amassed a stake valued at $11.7 million. Renaissance Technologies, Citadel Investment Group, and Winton Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Triumph Bancorp Inc (NASDAQ:TBK) has experienced bearish sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of money managers who sold off their full holdings last quarter. At the top of the heap, Remy Trafelet's Trafelet Capital said goodbye to the biggest stake of the 700 funds tracked by Insider Monkey, worth an estimated $10.8 million in stock, and Richard Driehaus's Driehaus Capital was right behind this move, as the fund sold off about $8.9 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Triumph Bancorp Inc (NASDAQ:TBK). These stocks are Fossil Group Inc (NASDAQ:FOSL), Westlake Chemical Partners LP (NYSE:WLKP), FTS International, Inc. (NYSE:FTSI), and Puma Biotechnology Inc (NASDAQ:PBYI). This group of stocks' market caps resemble TBK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FOSL,18,87459,0 WLKP,1,1898,-2 FTSI,22,86133,1 PBYI,22,247828,0 Average,15.75,105830,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $60 million in TBK's case. FTS International, Inc. (NYSE:FTSI) is the most popular stock in this table. On the other hand Westlake Chemical Partners LP (NYSE:WLKP) is the least popular one with only 1 bullish hedge fund positions. Triumph Bancorp Inc (NASDAQ:TBK) 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 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 TBK wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); TBK investors were disappointed as the stock returned -3.8% 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.