Hedge Funds Are Selling 2U Inc (TWOU)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing more than 730 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of June 28th, 2019. What do these smart investors think about 2U Inc (NASDAQ:TWOU)?

2U Inc (NASDAQ:TWOU) has seen a decrease in support from the world’s most elite money managers of late. TWOU was in 14 hedge funds’ portfolios at the end of June. There were 19 hedge funds in our database with TWOU holdings at the end of the previous quarter. Our calculations also showed that TWOU isn’t among the 30 most popular stocks among hedge funds (view video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

John Overdeck of Two Sigma

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the latest hedge fund action regarding 2U Inc (NASDAQ:TWOU).

What have hedge funds been doing with 2U Inc (NASDAQ:TWOU)?

At Q2’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in TWOU a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

No of Hedge Funds with TWOU Positions

The largest stake in 2U Inc (NASDAQ:TWOU) was held by Greenvale Capital, which reported holding $37.6 million worth of stock at the end of March. It was followed by Lucha Capital Management with a $14.7 million position. Other investors bullish on the company included Berylson Capital Partners, Two Sigma Advisors, and D E Shaw.

Judging by the fact that 2U Inc (NASDAQ:TWOU) has witnessed falling interest from the smart money, logic holds that there exists a select few fund managers that elected to cut their entire stakes last quarter. Intriguingly, Brian Ashford-Russell and Tim Woolley’s Polar Capital sold off the largest stake of all the hedgies tracked by Insider Monkey, valued at close to $35.4 million in stock. Genevieve Kahr’s fund, Ailanthus Capital Management, also dropped its stock, about $19.8 million worth. These transactions are interesting, as total hedge fund interest fell by 5 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to 2U Inc (NASDAQ:TWOU). We will take a look at Apergy Corporation (NYSE:APY), Colony Capital Inc (NYSE:CLNY), International Bancshares Corporation (NASDAQ:IBOC), and Itron, Inc. (NASDAQ:ITRI). This group of stocks’ market valuations resemble TWOU’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APY 15 122603 3
CLNY 16 345983 -7
IBOC 18 147617 4
ITRI 22 483411 7
Average 17.75 274904 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $275 million. That figure was $71 million in TWOU’s case. Itron, Inc. (NASDAQ:ITRI) is the most popular stock in this table. On the other hand Apergy Corporation (NYSE:APY) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks 2U Inc (NASDAQ:TWOU) is even less popular than APY. Hedge funds dodged a bullet by taking a bearish stance towards TWOU. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TWOU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TWOU investors were disappointed as the stock returned -56.7% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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