Here’s Why TAL Education Group (TAL) Landed in Baillie Gifford’s Top Detractor List

·3 min read

Baillie Gifford, a large-scale investment management firm in the UK, published its "Long Term Global Growth Fund" second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of 13.59% was recorded by the fund for the second quarter of 2021, compared to the 7.53% return of its MSCI ACWI benchmark. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Baillie Gifford, the fund mentioned TAL Education Group (NYSE: TAL), and discussed its stance on the firm. TAL Education Group is a Beijing, China-based educational technology company, that currently has a $3.9 billion market capitalization. TAL delivered a -91.51% return since the beginning of the year, while its 12-month returns are down to -92.23%. The stock closed at $6.07 per share on July 30, 2021.

Here is what Baillie Gifford has to say about TAL Education Group in its Q2 2021 investor letter:

"Among the top detractors from Fund performance in the second quarter was Tal Education. Tal Education’s share price weakened over the quarter following announced changes in Chinese anti-trust regulation of the private tuition industry. From a long-term investment perspective, however, such developments appear conducive to more sustainable practices across the industry, in which TAL remains the leader. Operational performance remains strong– the company reported a revenue increase of 59% over the previous year and a 44% increase in student enrolments to 6.7 million, driven by its small class offerings and online courses."

Education
Education

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Based on our calculations, TAL Education Group (NYSE: TAL) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. TAL was in 38 hedge fund portfolios at the end of the first quarter of 2021, compared to 29 funds in the fourth quarter of 2020. TAL Education Group (NYSE: TAL) delivered a -89.34% return in the past 3 months.

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 S&P 500 ETFs by 115 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 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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Disclosure: None. This article is originally published at Insider Monkey.

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