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These Hedge Funds Sold Out of Tyler Technologies, Inc. (TYL) A Bit Too Early

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves.

Tyler Technologies, Inc. (NYSE:TYL) was in 24 hedge funds’ portfolios at the end of June. TYL investors should pay attention to a decrease in hedge fund sentiment recently. There were 31 hedge funds in our database with TYL holdings at the end of the previous quarter. Our calculations also showed that TYL isn’t among the 30 most popular stocks among hedge funds (see the 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.

At the moment there are a large number of gauges stock market investors employ to value publicly traded companies. Some of the most underrated gauges are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can outpace the market by a healthy amount (see the details here).

TYL_oct2019

Unlike this former hedge fund manager 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. We’re going to take a glance at the latest hedge fund action encompassing Tyler Technologies, Inc. (NYSE:TYL).

What does smart money think about Tyler Technologies, Inc. (NYSE:TYL)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in TYL a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Blair Levinsky of Waratah Capital Advisors

The largest stake in Tyler Technologies, Inc. (NYSE:TYL) was held by Praesidium Investment Management Company, which reported holding $129.1 million worth of stock at the end of March. It was followed by Two Creeks Capital Management with a $119.3 million position. Other investors bullish on the company included RGM Capital, Citadel Investment Group, and Stockbridge Partners.

Since Tyler Technologies, Inc. (NYSE:TYL) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there exists a select few funds that decided to sell off their positions entirely in the second quarter. Intriguingly, Lou Simpson’s SQ Advisors said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $79.8 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $6.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 7 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Tyler Technologies, Inc. (NYSE:TYL). These stocks are Crown Holdings, Inc. (NYSE:CCK), Lear Corporation (NYSE:LEA), National Oilwell Varco, Inc. (NYSE:NOV), and Levi Strauss & Co. (NYSE:LEVI). This group of stocks’ market caps are similar to TYL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCK 35 877153 -3
LEA 31 843807 -9
NOV 22 755334 4
LEVI 15 74009 -10
Average 25.75 637576 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $540 million in TYL’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Levi Strauss & Co. (NYSE:LEVI) is the least popular one with only 15 bullish hedge fund positions. Tyler Technologies, Inc. (NYSE:TYL) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on TYL as the stock returned 21.5% during the same time frame and outperformed the market by an even larger margin.

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

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