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Did Hedge Funds Drop The Ball On Tucows Inc. (TCX) ?

Reymerlyn Martin

"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Tucows Inc. (NASDAQ:TCX) shareholders have witnessed a decrease in hedge fund sentiment in recent months. TCX was in 7 hedge funds' portfolios at the end of December. There were 9 hedge funds in our database with TCX positions at the end of the previous quarter. Our calculations also showed that TCX isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

We're going to take a look at the key hedge fund action regarding Tucows Inc. (NASDAQ:TCX).

How have hedgies been trading Tucows Inc. (NASDAQ:TCX)?

At Q4's end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in TCX a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TCX_may2019

More specifically, Renaissance Technologies was the largest shareholder of Tucows Inc. (NASDAQ:TCX), with a stake worth $26.2 million reported as of the end of December. Trailing Renaissance Technologies was Osmium Partners, which amassed a stake valued at $16 million. Lyon Street Capital, Citadel Investment Group, and PEAK6 Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because Tucows Inc. (NASDAQ:TCX) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few hedgies who sold off their full holdings heading into Q3. Intriguingly, Ken Griffin's Citadel Investment Group dumped the biggest stake of the 700 funds watched by Insider Monkey, totaling an estimated $1.1 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund sold off about $0.8 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds heading into Q3.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Tucows Inc. (NASDAQ:TCX) but similarly valued. These stocks are Quad/Graphics, Inc. (NYSE:QUAD), SurModics, Inc. (NASDAQ:SRDX), AC Immune SA (NASDAQ:ACIU), and GoPro Inc (NASDAQ:GPRO). All of these stocks' market caps are similar to TCX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QUAD,20,34088,7 SRDX,17,144091,4 ACIU,8,71314,-1 GPRO,13,47714,-1 Average,14.5,74302,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $48 million in TCX's case. Quad/Graphics, Inc. (NYSE:QUAD) is the most popular stock in this table. On the other hand AC Immune SA (NASDAQ:ACIU) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Tucows Inc. (NASDAQ:TCX) is even less popular than ACIU. Hedge funds clearly dropped the ball on TCX as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on TCX as the stock returned 47.6% and outperformed the market by an even larger margin.

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

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