Hedge Funds Have Never Been This Bullish On Translate Bio, Inc. (TBIO)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Translate Bio, Inc. (NASDAQ:TBIO) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Translate Bio, Inc. (NASDAQ:TBIO) going to take off soon? The smart money was getting more optimistic. The number of long hedge fund bets improved by 19 lately. Translate Bio, Inc. (NASDAQ:TBIO) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistics is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TBIO 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). There were 7 hedge funds in our database with TBIO holdings at the end of March.

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 56 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.


Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 we’re going to view the fresh hedge fund action encompassing Translate Bio, Inc. (NASDAQ:TBIO).

How are hedge funds trading Translate Bio, Inc. (NASDAQ:TBIO)?

At second quarter’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 271% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in TBIO 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.

Is TBIO A Good Stock To Buy?

More specifically, Baupost Group was the largest shareholder of Translate Bio, Inc. (NASDAQ:TBIO), with a stake worth $319.1 million reported as of the end of September. Trailing Baupost Group was Frazier Healthcare Partners, which amassed a stake valued at $39.1 million. Millennium Management, Key Square Capital Management, and Camber 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 Key Square Capital Management allocated the biggest weight to Translate Bio, Inc. (NASDAQ:TBIO), around 4.28% of its 13F portfolio. Baupost Group is also relatively very bullish on the stock, setting aside 3.98 percent of its 13F equity portfolio to TBIO.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, created the biggest position in Translate Bio, Inc. (NASDAQ:TBIO). Millennium Management had $21 million invested in the company at the end of the quarter. Scott Bessent’s Key Square Capital Management also made a $18.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Jonathan Barrett and Paul Segal’s Luminus Management, Anand Parekh’s Alyeska Investment Group, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Translate Bio, Inc. (NASDAQ:TBIO) but similarly valued. We will take a look at ACM Research, Inc. (NASDAQ:ACMR), MFA Financial, Inc. (NYSE:MFA), OneSpan Inc. (NASDAQ:OSPN), Bitauto Hldg Ltd (NYSE:BITA), Core-Mark Holding Company, Inc. (NASDAQ:CORE), Inseego Corp. (NASDAQ:INSG), and Corecivic Inc. (NYSE:CXW). This group of stocks’ market values are similar to TBIO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACMR 11 85100 1
MFA 16 71744 0
OSPN 15 142351 2
BITA 16 203403 -2
CORE 15 26413 -4
INSG 9 33307 -3
CXW 15 61398 -3
Average 13.9 89102 -1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $494 million in TBIO’s case. MFA Financial, Inc. (NYSE:MFA) is the most popular stock in this table. On the other hand Inseego Corp. (NASDAQ:INSG) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Translate Bio, Inc. (NASDAQ:TBIO) is more popular among hedge funds. Our overall hedge fund sentiment score for TBIO is 90. 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 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately TBIO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TBIO were disappointed as the stock returned -26.7% since the end of 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.

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