Were Hedge Funds Right About Tactile Systems Technology (TCMD)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tactile Systems Technology, Inc. (NASDAQ:TCMD).

Tactile Systems Technology, Inc. (NASDAQ:TCMD) was in 12 hedge funds’ portfolios at the end of December. TCMD has seen an increase in support from the world’s most elite money managers in recent months. There were 10 hedge funds in our database with TCMD holdings 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 Q4 rankings and see the video at the end of this article for Q3 rankings).

Richard Driehaus of Driehaus Capital

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the key hedge fund action regarding Tactile Systems Technology, Inc. (NASDAQ:TCMD).

How have hedgies been trading Tactile Systems Technology, Inc. (NASDAQ:TCMD)?

At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the third quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in TCMD a year ago. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is TCMD A Good Stock To Buy?

Among these funds, Driehaus Capital held the most valuable stake in Tactile Systems Technology, Inc. (NASDAQ:TCMD), which was worth $12.5 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $9.5 million worth of shares. Point72 Asset Management, Polar Capital, and D E Shaw 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 Lyon Street Capital allocated the biggest weight to Tactile Systems Technology, Inc. (NASDAQ:TCMD), around 1.49% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, designating 0.33 percent of its 13F equity portfolio to TCMD.

Now, specific money managers were breaking ground themselves. Winton Capital Management, managed by David Harding, created the largest position in Tactile Systems Technology, Inc. (NASDAQ:TCMD). Winton Capital Management had $9.5 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $7.3 million investment in the stock during the quarter. The following funds were also among the new TCMD investors: Brian Ashford-Russell and Tim Woolley’s Polar Capital and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s now take a look at hedge fund activity in other stocks similar to Tactile Systems Technology, Inc. (NASDAQ:TCMD). These stocks are Eldorado Gold Corp (NYSE:EGO), Medifast, Inc. (NYSE:MED), Boot Barn Holdings Inc (NYSE:BOOT), and Amerisafe, Inc. (NASDAQ:AMSF). This group of stocks’ market values are closest to TCMD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EGO 13 149900 0
MED 19 441855 -4
BOOT 28 154923 5
AMSF 10 35236 -4
Average 17.5 195479 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $46 million in TCMD’s case. Boot Barn Holdings Inc (NYSE:BOOT) is the most popular stock in this table. On the other hand Amerisafe, Inc. (NASDAQ:AMSF) is the least popular one with only 10 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 1.0% in 2020 through May 1st but beat the market by 12.9 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 -27.8% during the same time period 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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