Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is TransAct Technologies Incorporated (NASDAQ:TACT) an exceptional investment right now? Investors who are in the know are selling. The number of bullish hedge fund positions decreased by 1 in recent months. Our calculations also showed that TACT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TACT was in 5 hedge funds' portfolios at the end of the third quarter of 2019. There were 6 hedge funds in our database with TACT 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/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 let's take a glance at the new hedge fund action regarding TransAct Technologies Incorporated (NASDAQ:TACT).
What does smart money think about TransAct Technologies Incorporated (NASDAQ:TACT)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TACT over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of TransAct Technologies Incorporated (NASDAQ:TACT), with a stake worth $4.9 million reported as of the end of September. Trailing Renaissance Technologies was Harbert Management, which amassed a stake valued at $2.5 million. GAMCO Investors, Fondren Management, and Royce & Associates 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 Harbert Management allocated the biggest weight to TransAct Technologies Incorporated (NASDAQ:TACT), around 3.65% of its 13F portfolio. Fondren Management is also relatively very bullish on the stock, dishing out 0.46 percent of its 13F equity portfolio to TACT.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified TACT as a viable investment and initiated a position in the stock.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as TransAct Technologies Incorporated (NASDAQ:TACT) but similarly valued. These stocks are Profire Energy, Inc. (NASDAQ:PFIE), Frontier Communications Corporation (NASDAQ:FTR), Trevena Inc (NASDAQ:TRVN), and Verastem Inc (NASDAQ:VSTM). This group of stocks' market values are similar to TACT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PFIE,8,8100,-1 FTR,12,6158,0 TRVN,6,2792,1 VSTM,8,8446,-1 Average,8.5,6374,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $9 million in TACT's case. Frontier Communications Corporation (NASDAQ:FTR) is the most popular stock in this table. On the other hand Trevena Inc (NASDAQ:TRVN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks TransAct Technologies Incorporated (NASDAQ:TACT) is even less popular than TRVN. Hedge funds dodged a bullet by taking a bearish stance towards TACT. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TACT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TACT investors were disappointed as the stock returned -7% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.