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In this article we will take a look at whether hedge funds think Translate Bio, Inc. (NASDAQ:TBIO) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Translate Bio, Inc. (NASDAQ:TBIO) a bargain? Investors who are in the know are becoming less hopeful. The number of long hedge fund positions were cut by 2 in recent months. Our calculations also showed that TBIO 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.
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 S&P 500 ETFs by more than 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 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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Joseph Edelman of Perceptive Advisors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a glance at the recent hedge fund action surrounding Translate Bio, Inc. (NASDAQ:TBIO).
How have hedgies been trading Translate Bio, Inc. (NASDAQ:TBIO)?
At Q1'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. The graph below displays the number of hedge funds with bullish position in TBIO over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Seth Klarman's Baupost Group has the biggest position in Translate Bio, Inc. (NASDAQ:TBIO), worth close to $171.1 million, corresponding to 2.5% of its total 13F portfolio. The second largest stake is held by Frazier Healthcare Partners, led by Alan Frazier, holding a $21.8 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism encompass Stephen DuBois's Camber Capital Management, Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management and Joseph Edelman's Perceptive Advisors. In terms of the portfolio weights assigned to each position Baupost Group allocated the biggest weight to Translate Bio, Inc. (NASDAQ:TBIO), around 2.53% of its 13F portfolio. Frazier Healthcare Partners is also relatively very bullish on the stock, dishing out 2.47 percent of its 13F equity portfolio to TBIO.
Because Translate Bio, Inc. (NASDAQ:TBIO) has faced bearish sentiment from the smart money, we can see that there were a few money managers that decided to sell off their entire stakes in the first quarter. It's worth mentioning that Nathan Fischel's DAFNA Capital Management cut the largest stake of the "upper crust" of funds tracked by Insider Monkey, worth close to $1.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dumped its stock, about $0.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Translate Bio, Inc. (NASDAQ:TBIO) but similarly valued. We will take a look at Federal Agricultural Mortgage Corp. (NYSE:AGM), Resideo Technologies, Inc. (NYSE:REZI), Boston Private Financial Hldg Inc (NASDAQ:BPFH), and Seabridge Gold, Inc. (NYSE:SA). This group of stocks' market caps are closest to TBIO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGM,9,20831,-1 REZI,25,151073,4 BPFH,14,36833,-2 SA,7,28075,1 Average,13.75,59203,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $224 million in TBIO's case. Resideo Technologies, Inc. (NYSE:REZI) is the most popular stock in this table. On the other hand Seabridge Gold, Inc. (NYSE:SA) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Translate Bio, Inc. (NASDAQ:TBIO) is even less popular than SA. Hedge funds clearly dropped the ball on TBIO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on TBIO as the stock returned 49.9% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.