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Were Hedge Funds Wrong About TransUnion (TRU)?

Abigail Fisher
·6 min read

In this article we will take a look at whether hedge funds think TransUnion (NYSE:TRU) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

TransUnion (NYSE:TRU) investors should be aware of an increase in activity from the world's largest hedge funds of late. TransUnion (NYSE:TRU) was in 47 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 44 hedge funds in our database with TRU positions at the end of the first quarter. Our calculations also showed that TRU isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ian Wace Marshall Wace
Ian Wace Marshall Wace

Ian Wace of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth 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 to get excerpts of these letters in your inbox. Keeping this in mind let's take a look at the recent hedge fund action encompassing TransUnion (NYSE:TRU).

How are hedge funds trading TransUnion (NYSE:TRU)?

At second quarter's end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in TRU 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, Citadel Investment Group was the largest shareholder of TransUnion (NYSE:TRU), with a stake worth $295.4 million reported as of the end of September. Trailing Citadel Investment Group was Select Equity Group, which amassed a stake valued at $284 million. Marshall Wace LLP, Palestra Capital Management, and Farallon Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lansing Management allocated the biggest weight to TransUnion (NYSE:TRU), around 15.64% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, earmarking 3.96 percent of its 13F equity portfolio to TRU.

As industrywide interest jumped, some big names were leading the bulls' herd. Select Equity Group, managed by Robert Joseph Caruso, established the largest position in TransUnion (NYSE:TRU). Select Equity Group had $284 million invested in the company at the end of the quarter. Andrew Immerman and Jeremy Schiffman's Palestra Capital Management also made a $105.3 million investment in the stock during the quarter. The other funds with brand new TRU positions are James Parsons's Junto Capital Management, Robert Pohly's Samlyn Capital, and Sander Gerber's Hudson Bay Capital Management.

Let's check out hedge fund activity in other stocks similar to TransUnion (NYSE:TRU). We will take a look at Northern Trust Corporation (NASDAQ:NTRS), Restaurant Brands International Inc (NYSE:QSR), Yandex NV (NASDAQ:YNDX), Peloton Interactive, Inc. (NASDAQ:PTON), CGI Inc. (NYSE:GIB), Fox Corporation (NASDAQ:FOX), and Fox Corporation (NASDAQ:FOXA). This group of stocks' market valuations match TRU's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTRS,35,449745,8 QSR,44,2868475,3 YNDX,44,1403652,9 PTON,50,2109831,14 GIB,19,259686,1 FOX,20,566122,-2 FOXA,35,1611691,-3 Average,35.3,1324172,4.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $1324 million. That figure was $1629 million in TRU's case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand CGI Inc. (NYSE:GIB) is the least popular one with only 19 bullish hedge fund positions. TransUnion (NYSE:TRU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TRU is 83.2. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately TRU wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TRU were disappointed as the stock returned -1.1% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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