With the first-quarter round of 13F filings behind us, it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was TRACON Pharmaceuticals Inc (NASDAQ:TCON).
TRACON Pharmaceuticals Inc (NASDAQ:TCON) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Novelion Therapeutics Inc. (NASDAQ:NVLN), Shineco, Inc. (NASDAQ:TYHT), and Supercom Ltd (NASDAQ:SPCB) to gather more data points. Our calculations also showed that TCON isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
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Ken Griffin of Citadel Investment Group[/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. Keeping this in mind we're going to check out the latest hedge fund action encompassing TRACON Pharmaceuticals Inc (NASDAQ:TCON).
What have hedge funds been doing with TRACON Pharmaceuticals Inc (NASDAQ:TCON)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in TCON a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Puissance Capital Management, managed by Ted Wang, holds the largest position in TRACON Pharmaceuticals Inc (NASDAQ:TCON). Puissance Capital Management has a $2.1 million position in the stock, comprising 4.6% of its 13F portfolio. Coming in second is 683 Capital Partners, managed by Ari Zweiman, which holds a $1.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions comprise Jim Simons (founder)'s Renaissance Technologies, Ken Griffin's Citadel Investment Group and in terms of the portfolio weights assigned to each position Puissance Capital Management allocated the biggest weight to TRACON Pharmaceuticals Inc (NASDAQ:TCON), around 4.59% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, designating 0.13 percent of its 13F equity portfolio to TCON.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now take a look at hedge fund activity in other stocks similar to TRACON Pharmaceuticals Inc (NASDAQ:TCON). These stocks are Novelion Therapeutics Inc. (NASDAQ:NVLN), Shineco, Inc. (NASDAQ:TYHT), Supercom Ltd (NASDAQ:SPCB), and Bonso Electronics International Inc. (NASDAQ:BNSO). This group of stocks' market valuations are closest to TCON's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVLN,6,1629,2 TYHT,1,387,0 SPCB,1,26,0 BNSO,1,360,0 Average,2.25,601,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $4 million in TCON's case. Novelion Therapeutics Inc. (NASDAQ:NVLN) is the most popular stock in this table. On the other hand, Shineco, Inc. (NASDAQ:TYHT) is the least popular one with only 1 bullish hedge fund positions. TRACON Pharmaceuticals Inc (NASDAQ:TCON) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately, TCON wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TCON were disappointed as the stock returned -19.5% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.