Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Tucows Inc. (NYSE:TCX) changed during the first quarter.
Is Tucows Inc. (NYSE:TCX) ready to rally soon? Money managers are taking a pessimistic view. The number of long hedge fund bets fell by 2 in recent months. Our calculations also showed that TCX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TCX was in 6 hedge funds' portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with TCX 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.
Why do we pay any attention at all to hedge fund sentiment? 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. Now let's view the fresh hedge fund action encompassing Tucows Inc. (NYSE:TCX).
What does smart money think about Tucows Inc. (NYSE:TCX)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options 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.
Of the funds tracked by Insider Monkey, (NYSE:TCX), worth close to $26 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Osmium Partners, led by John H Lewis, holding a $8.1 million position; the fund has 10.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Ken Griffin's Citadel Investment Group and David E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Osmium Partners allocated the biggest weight to Tucows Inc. (NYSE:TCX), around 10.14% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to TCX.
Seeing as Tucows Inc. (NYSE:TCX) has witnessed falling interest from the smart money, it's safe to say that there were a few money managers that slashed their entire stakes heading into Q4. Interestingly, David Harding's Winton Capital Management sold off the biggest investment of the 750 funds watched by Insider Monkey, valued at an estimated $0.4 million in stock. Cliff Asness's fund, AQR Capital Management, also sold off its stock, about $0.2 million worth. These moves are important to note, as total hedge fund interest was cut by 2 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Tucows Inc. (NYSE:TCX) but similarly valued. These stocks are TPG Pace Holdings Corp. (NYSE:TPGH), Modine Manufacturing Company (NYSE:MOD), Independence Holding Company (NYSE:IHC), and CURO Group Holdings Corp. (NYSE:CURO). This group of stocks' market caps match TCX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TPGH,21,184285,2 MOD,18,66235,-2 IHC,4,17598,1 CURO,16,90355,3 Average,14.75,89618,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $38 million in TCX's case. TPG Pace Holdings Corp. (NYSE:TPGH) is the most popular stock in this table. On the other hand Independence Holding Company (NYSE:IHC) is the least popular one with only 4 bullish hedge fund positions. Tucows Inc. (NYSE:TCX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 TCX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TCX investors were disappointed as the stock returned 4.8% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.