The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtTactile Systems Technology, Inc. (NASDAQ:TCMD) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.
Tactile Systems Technology, Inc. (NASDAQ:TCMD) was in 13 hedge funds’ portfolios at the end of March. TCMD investors should pay attention to an increase in enthusiasm from smart money of late. There were 12 hedge funds in our database with TCMD positions at the end of the previous quarter. Our calculations also showed that TCMD isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 most profitable companies in the world to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the latest hedge fund action regarding Tactile Systems Technology, Inc. (NASDAQ:TCMD).
Hedge fund activity in Tactile Systems Technology, Inc. (NASDAQ:TCMD)
At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the fourth quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in TCMD a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Polar Capital was the largest shareholder of Tactile Systems Technology, Inc. (NASDAQ:TCMD), with a stake worth $8.2 million reported as of the end of September. Trailing Polar Capital was Citadel Investment Group, which amassed a stake valued at $7.9 million. Driehaus Capital, D E Shaw, and Winton Capital Management 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 Algert Coldiron Investors allocated the biggest weight to Tactile Systems Technology, Inc. (NASDAQ:TCMD), around 0.39% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, designating 0.25 percent of its 13F equity portfolio to TCMD.
Now, some big names were leading the bulls’ herd. Renaissance Technologies, established the most valuable position in Tactile Systems Technology, Inc. (NASDAQ:TCMD). Renaissance Technologies had $2.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $0.8 million position during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Mika Toikka’s AlphaCrest Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s check out hedge fund activity in other stocks similar to Tactile Systems Technology, Inc. (NASDAQ:TCMD). These stocks are Daqo New Energy Corp (NYSE:DQ), Primoris Services Corp (NASDAQ:PRIM), Turquoise Hill Resources Ltd (NYSE:TRQ), and Ferro Corporation (NYSE:FOE). This group of stocks’ market valuations match TCMD’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $39 million in TCMD’s case. Ferro Corporation (NYSE:FOE) is the most popular stock in this table. On the other hand Primoris Services Corp (NASDAQ:PRIM) is the least popular one with only 11 bullish hedge fund positions. Tactile Systems Technology, Inc. (NASDAQ:TCMD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately TCMD wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TCMD investors were disappointed as the stock returned 4.6% during the second quarter 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.