Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Bio-Techne Corporation (NASDAQ:TECH).
Is Bio-Techne Corporation (NASDAQ:TECH) ready to rally soon? The smart money is in a pessimistic mood. The number of bullish hedge fund bets fell by 5 lately. Our calculations also showed that TECH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TECH was in 19 hedge funds' portfolios at the end of September. There were 24 hedge funds in our database with TECH holdings at the end of the previous quarter. Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to take a look at the key hedge fund action regarding Bio-Techne Corporation (NASDAQ:TECH).
How have hedgies been trading Bio-Techne Corporation (NASDAQ:TECH)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TECH over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Bio-Techne Corporation (NASDAQ:TECH) was held by Renaissance Technologies, which reported holding $111 million worth of stock at the end of September. It was followed by 12 West Capital Management with a $69.7 million position. Other investors bullish on the company included Royce & Associates, AQR Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position 12 West Capital Management allocated the biggest weight to Bio-Techne Corporation (NASDAQ:TECH), around 4.49% of its 13F portfolio. Sandler Capital Management is also relatively very bullish on the stock, earmarking 0.74 percent of its 13F equity portfolio to TECH.
Since Bio-Techne Corporation (NASDAQ:TECH) has experienced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few money managers that slashed their positions entirely last quarter. Interestingly, John Osterweis's Osterweis Capital Management cut the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling about $3.2 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund dropped about $1.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 5 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Bio-Techne Corporation (NASDAQ:TECH) but similarly valued. We will take a look at Peloton Interactive, Inc. (NASDAQ:PTON), BeiGene, Ltd. (NASDAQ:BGNE), Genpact Limited (NYSE:G), and China Southern Airlines Company Limited (NYSE:ZNH). This group of stocks' market values match TECH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PTON,27,450294,27 BGNE,9,2186184,-3 G,35,862399,9 ZNH,2,12318,1 Average,18.25,877799,8.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $878 million. That figure was $318 million in TECH's case. Genpact Limited (NYSE:G) is the most popular stock in this table. On the other hand China Southern Airlines Company Limited (NYSE:ZNH) is the least popular one with only 2 bullish hedge fund positions. Bio-Techne Corporation (NASDAQ:TECH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on TECH as the stock returned 11.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.