Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is TELA Bio, Inc. (NASDAQ:TELA), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is TELA a good stock to buy now? Money managers were taking a pessimistic view. The number of bullish hedge fund bets were cut by 2 lately. TELA Bio, Inc. (NASDAQ:TELA) was in 7 hedge funds’ portfolios at the end of September. The all time high for this statistics is 9. Our calculations also showed that TELA isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Keeping this in mind let’s check out the latest hedge fund action surrounding TELA Bio, Inc. (NASDAQ:TELA).
What have hedge funds been doing with TELA Bio, Inc. (NASDAQ:TELA)?
At the end of September, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the second quarter of 2020. By comparison, 0 hedge funds held shares or bullish call options in TELA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Samuel Isaly’s OrbiMed Advisors has the largest position in TELA Bio, Inc. (NASDAQ:TELA), worth close to $50.1 million, comprising 0.6% of its total 13F portfolio. The second most bullish fund manager is Alyeska Investment Group, led by Anand Parekh, holding a $7.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of James A. Silverman’s Opaleye Management, Efrem Kamen’s Pura Vida Investments and Matthew Halbower’s Pentwater Capital Management. In terms of the portfolio weights assigned to each position Opaleye Management allocated the biggest weight to TELA Bio, Inc. (NASDAQ:TELA), around 1.17% of its 13F portfolio. OrbiMed Advisors is also relatively very bullish on the stock, earmarking 0.63 percent of its 13F equity portfolio to TELA.
Because TELA Bio, Inc. (NASDAQ:TELA) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that slashed their entire stakes last quarter. Intriguingly, Jonathan Barrett and Paul Segal’s Luminus Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, valued at about $2.4 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $0.8 million worth. These moves are interesting, as total hedge fund interest dropped by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as TELA Bio, Inc. (NASDAQ:TELA) but similarly valued. We will take a look at Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR), Value Line, Inc. (NASDAQ:VALU), Astronics Corporation (NASDAQ:ATRO), NVE Corporation (NASDAQ:NVEC), A-Mark Precious Metals, Inc. (NASDAQ:AMRK), Akumin Inc. (NASDAQ:AKU), and Unifi, Inc. (NYSE:UFI). This group of stocks’ market valuations are closest to TELA’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $76 million in TELA’s case. Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) is the most popular stock in this table. On the other hand Value Line, Inc. (NASDAQ:VALU) is the least popular one with only 2 bullish hedge fund positions. TELA Bio, Inc. (NASDAQ:TELA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TELA is 36.8. 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and surpassed the market again by 16 percentage points. Unfortunately TELA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TELA investors were disappointed as the stock returned -8.3% since the end of September (through 12/2) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.