Do Hedge Funds Love TPG Pace Holdings Corp. (TPGH)?
Abigail Fisher
Updated
It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 15.1% over the last 12 months (vs. 5.6% gain for SPY), with 53% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in TPG Pace Holdings Corp. (NYSE:TPGH).
Is TPG Pace Holdings Corp. (NYSE:TPGH) ready to rally soon? The smart money is taking a pessimistic view. The number of bullish hedge fund bets decreased by 2 in recent months. Our calculations also showed that TPGH isn't among the 30 most popular stocks among hedge funds. TPGH was in 17 hedge funds' portfolios at the end of the third quarter of 2018. There were 19 hedge funds in our database with TPGH positions at the end of the previous quarter.
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 18 percentage points since May 2014 through December 3, 2018 (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.
Glenn Russell Dubin of Highbridge Capital[/caption]
Let's go over the new hedge fund action surrounding TPG Pace Holdings Corp. (NYSE:TPGH).
How are hedge funds trading TPG Pace Holdings Corp. (NYSE:TPGH)?
At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TPGH over the last 13 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
TPGH_dec2018
More specifically, Highbridge Capital Management was the largest shareholder of TPG Pace Holdings Corp. (NYSE:TPGH), with a stake worth $27.5 million reported as of the end of September. Trailing Highbridge Capital Management was Arrowgrass Capital Partners, which amassed a stake valued at $23.1 million. Governors Lane, Alyeska Investment Group, and Indaba Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since TPG Pace Holdings Corp. (NYSE:TPGH) has witnessed a decline in interest from hedge fund managers, we can see that there is a sect of fund managers that slashed their entire stakes last quarter. Interestingly, Andrew Weiss's Weiss Asset Management dropped the biggest investment of the 700 funds monitored by Insider Monkey, totaling about $7.1 million in stock, and John Thiessen's Vertex One Asset Management was right behind this move, as the fund cut about $2.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.
Let's check out hedge fund activity in other stocks similar to TPG Pace Holdings Corp. (NYSE:TPGH). We will take a look at Lands' End, Inc. (NASDAQ:LE), Limelight Networks, Inc. (NASDAQ:LLNW), On Deck Capital Inc (NYSE:ONDK), and Access National Corporation (NASDAQ:ANCX). This group of stocks' market caps match TPGH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LE,14,112517,-2 LLNW,17,43858,-1 ONDK,21,163797,4 ANCX,3,16165,0 Average,13.75,84084,0.25 [/table]
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $208 million in TPGH's case. On Deck Capital Inc (NYSE:ONDK) is the most popular stock in this table. On the other hand Access National Corporation (NASDAQ:ANCX) is the least popular one with only 3 bullish hedge fund positions. TPG Pace Holdings Corp. (NYSE:TPGH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard ONDK might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
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