2U Inc (TWOU): Are Hedge Funds Right About This Stock?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about 2U Inc (NASDAQ:TWOU).

2U Inc (NASDAQ:TWOU) investors should pay attention to an increase in support from the world’s most elite money managers recently. 2U Inc (NASDAQ:TWOU) was in 23 hedge funds’ portfolios at the end of March. The all time high for this statistic is 25. There were 22 hedge funds in our database with TWOU positions at the end of the fourth quarter. Our calculations also showed that TWOU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s take a look at the new hedge fund action regarding 2U Inc (NASDAQ:TWOU).

Do Hedge Funds Think TWOU Is A Good Stock To Buy Now?

At Q1’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in TWOU a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in 2U Inc (NASDAQ:TWOU) was held by ARK Investment Management, which reported holding $452.5 million worth of stock at the end of December. It was followed by Greenvale Capital with a $101.3 million position. Other investors bullish on the company included D E Shaw, Two Sigma Advisors, and Melqart Asset Management. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to 2U Inc (NASDAQ:TWOU), around 11.03% of its 13F portfolio. Tenzing Global Investors is also relatively very bullish on the stock, designating 6.13 percent of its 13F equity portfolio to TWOU.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Melqart Asset Management, managed by Michel Massoud, established the most outsized position in 2U Inc (NASDAQ:TWOU). Melqart Asset Management had $29.8 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also made a $3.4 million investment in the stock during the quarter. The other funds with brand new TWOU positions are Renaissance Technologies, David Costen Haley’s HBK Investments, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as 2U Inc (NASDAQ:TWOU) but similarly valued. We will take a look at Editas Medicine, Inc. (NASDAQ:EDIT), Masonite International Corp (NYSE:DOOR), SITE Centers Corp. (NYSE:SITC), Cooper Tire & Rubber Company (NYSE:CTB), Enable Midstream Partners LP (NYSE:ENBL), Taro Pharmaceutical Industries Ltd. (NYSE:TARO), and Cedar Fair, L.P. (NYSE:FUN). All of these stocks’ market caps are similar to TWOU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EDIT 24 471562 7
DOOR 31 405857 3
SITC 9 71139 -2
CTB 24 307379 1
ENBL 6 27004 3
TARO 8 81146 2
FUN 14 157490 0
Average 16.6 217368 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.6 hedge funds with bullish positions and the average amount invested in these stocks was $217 million. That figure was $745 million in TWOU’s case. Masonite International Corp (NYSE:DOOR) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 6 bullish hedge fund positions. 2U Inc (NASDAQ:TWOU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TWOU is 67.6. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Hedge funds were also right about betting on TWOU, though not to the same extent, as the stock returned 10.6% since Q1 (through July 16th) and outperformed the market as well.

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