Were These Hedge Funds Wrong About Loading Up On TAL Education Group (TAL)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to TAL Education Group (NYSE:TAL) changed recently.

TAL Education Group (NYSE:TAL) has experienced an increase in enthusiasm from smart money recently. TAL Education Group (NYSE:TAL) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 38 hedge funds in our database with TAL holdings at the end of March. Our calculations also showed that TAL 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Rajiv Jain of GQG Partners
Rajiv Jain of GQG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap 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 TAL Education Group (NYSE:TAL).

What does smart money think about TAL Education Group (NYSE:TAL)?

Heading into the third quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TAL over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is TAL A Good Stock To Buy?
Is TAL A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Hillhouse Capital Management, managed by Lei Zhang, holds the number one position in TAL Education Group (NYSE:TAL). Hillhouse Capital Management has a $540.6 million position in the stock, comprising 4.9% of its 13F portfolio. The second most bullish fund manager is Tiger Global Management LLC, led by Chase Coleman, holding a $394.1 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions contain Jonathan Guo’s Yiheng Capital,  Renaissance Technologies and Wang Chan’s Serenity Capital. In terms of the portfolio weights assigned to each position Serenity Capital allocated the biggest weight to TAL Education Group (NYSE:TAL), around 40.73% of its 13F portfolio. Yiheng Capital is also relatively very bullish on the stock, earmarking 14.91 percent of its 13F equity portfolio to TAL.

As aggregate interest increased, key hedge funds were breaking ground themselves. GQG Partners, managed by Rajiv Jain, established the biggest position in TAL Education Group (NYSE:TAL). GQG Partners had $129 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also made a $25.8 million investment in the stock during the quarter. The other funds with brand new TAL positions are James Dinan’s York Capital Management, Andrew Dalrymple and Barry McCorkell’s Aubrey Capital Management, and Josh Resnick’s Jericho Capital Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as TAL Education Group (NYSE:TAL) but similarly valued. These stocks are TC Energy Corporation (NYSE:TRP), Banco Santander, S.A. (NYSE:SAN), Keurig Dr Pepper Inc. (NASDAQ:KDP), Enterprise Products Partners L.P. (NYSE:EPD), Prudential Public Limited Company (NYSE:PUK), American Electric Power Company, Inc. (NYSE:AEP), and DuPont de Nemours Inc (NYSE:DD). All of these stocks’ market caps resemble TAL’s market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRP,21,255710,-3 SAN,16,351399,-2 KDP,29,725935,-1 EPD,30,222209,4 PUK,5,9403,-1 AEP,34,753751,-4 DD,64,3509743,10 Average,28.4,832593,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $833 million. That figure was $2367 million in TAL’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 5 bullish hedge fund positions. TAL Education Group (NYSE:TAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TAL is 66.7. 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 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately TAL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TAL were disappointed as the stock returned -2.8% since the end of June (through 10/30) 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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