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Were Hedge Funds Right About Tucows Inc. (TCX)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Tucows Inc. (NYSE:TCX) and determine whether hedge funds skillfully traded this stock.

Tucows Inc. (NYSE:TCX) has seen an increase in enthusiasm from smart money of late. Our calculations also showed that TCX isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the key hedge fund action surrounding Tucows Inc. (NYSE:TCX).

How are hedge funds trading Tucows Inc. (NYSE:TCX)?

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the fourth quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in TCX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TCX A Good Stock To Buy?

Among these funds, Blacksheep Fund Management held the most valuable stake in Tucows Inc. (NYSE:TCX), which was worth $21.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $19.7 million worth of shares. Arrowstreet Capital, Osmium Partners, and Citadel Investment Group 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 Osmium Partners allocated the biggest weight to Tucows Inc. (NYSE:TCX), around 11.36% of its 13F portfolio. Blacksheep Fund Management is also relatively very bullish on the stock, setting aside 10.66 percent of its 13F equity portfolio to TCX.

Now, key money managers have jumped into Tucows Inc. (NYSE:TCX) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most valuable position in Tucows Inc. (NYSE:TCX). Marshall Wace LLP had $1.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.8 million investment in the stock during the quarter. The only other fund with a new position in the stock is Matthew Hulsizer’s PEAK6 Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Tucows Inc. (NYSE:TCX). We will take a look at Castle Biosciences, Inc. (NASDAQ:CSTL), Brookfield Property REIT Inc. (NASDAQ:BPYU), Cass Information Systems (NASDAQ:CASS), and Vista Outdoor Inc (NYSE:VSTO). All of these stocks’ market caps are closest to TCX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CSTL 9 49460 1
BPYU 12 9032 -1
CASS 9 11969 -2
VSTO 19 121745 0
Average 12.25 48052 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $55 million in TCX’s case. Vista Outdoor Inc (NYSE:VSTO) is the most popular stock in this table. On the other hand Castle Biosciences, Inc. (NASDAQ:CSTL) is the least popular one with only 9 bullish hedge fund positions. Tucows Inc. (NYSE:TCX) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately TCX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TCX investors were disappointed as the stock returned 18.8% during 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.