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Were Hedge Funds Right About Flocking Into Texas Pacific Land Trust (TPL) ?

Reymerlyn Martin

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 15 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 1% through March 15th whereas the S&P 500 Index ETF lost 2.2% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Texas Pacific Land Trust (NYSE:TPL) from the perspective of those elite funds.

Texas Pacific Land Trust (NYSE:TPL) has experienced an increase in activity from the world's largest hedge funds lately. TPL was in 13 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 11 hedge funds in our database with TPL positions at the end of the previous quarter. Our calculations also showed that TPL 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 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.

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Let's take a glance at the new hedge fund action surrounding Texas Pacific Land Trust (NYSE:TPL).

How are hedge funds trading Texas Pacific Land Trust (NYSE:TPL)?

At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TPL over the last 14 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TPL_apr2019

More specifically, Horizon Asset Management was the largest shareholder of Texas Pacific Land Trust (NYSE:TPL), with a stake worth $979.1 million reported as of the end of September. Trailing Horizon Asset Management was Polar Capital, which amassed a stake valued at $20.2 million. White Elm Capital, Arrowstreet Capital, and Beddow Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key money managers have jumped into Texas Pacific Land Trust (NYSE:TPL) headfirst. GLG Partners, managed by Noam Gottesman, assembled the most valuable position in Texas Pacific Land Trust (NYSE:TPL). GLG Partners had $3.8 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $3.3 million position during the quarter.

Let's now take a look at hedge fund activity in other stocks similar to Texas Pacific Land Trust (NYSE:TPL). We will take a look at JBG SMITH Properties (NYSE:JBGS), The Howard Hughes Corporation (NYSE:HHC), Primerica, Inc. (NYSE:PRI), and Green Dot Corporation (NYSE:GDOT). This group of stocks' market values are similar to TPL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JBGS,20,271835,3 HHC,26,476406,7 PRI,16,271268,4 GDOT,19,266170,-1 Average,20.25,321420,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $321 million. That figure was $1041 million in TPL's case. The Howard Hughes Corporation (NYSE:HHC) is the most popular stock in this table. On the other hand Primerica, Inc. (NYSE:PRI) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Texas Pacific Land Trust (NYSE:TPL) is even less popular than PRI. Hedge funds clearly dropped the ball on TPL as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on TPL as the stock returned 67.4% and outperformed the market by an even larger margin.

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

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