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In this article we are going to use hedge fund sentiment as a tool and determine whether Tecnoglass Inc. (NASDAQ:TGLS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Tecnoglass Inc. (NASDAQ:TGLS) investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. Tecnoglass Inc. (NASDAQ:TGLS) was in 3 hedge funds' portfolios at the end of September. The all time high for this statistics is 8. There were 4 hedge funds in our database with TGLS positions at the end of the second quarter. Our calculations also showed that TGLS isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bernard Horn of Polaris Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's go over the key hedge fund action surrounding Tecnoglass Inc. (NASDAQ:TGLS).
What have hedge funds been doing with Tecnoglass Inc. (NASDAQ:TGLS)?
At the end of September, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TGLS over the last 21 quarters. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Rutabaga Capital Management held the most valuable stake in Tecnoglass Inc. (NASDAQ:TGLS), which was worth $4.3 million at the end of the third quarter. On the second spot was Polaris Capital Management which amassed $2.1 million worth of shares. GRT Capital Partners was 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 Rutabaga Capital Management allocated the biggest weight to Tecnoglass Inc. (NASDAQ:TGLS), around 2.43% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, dishing out 0.1 percent of its 13F equity portfolio to TGLS.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 TGLS as a viable investment and initiated a position in the stock.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Tecnoglass Inc. (NASDAQ:TGLS) but similarly valued. We will take a look at Cross Country Healthcare, Inc. (NASDAQ:CCRN), The Joint Corp. (NASDAQ:JYNT), Global Water Resources, Inc. (NASDAQ:GWRS), Calithera Biosciences Inc (NASDAQ:CALA), Fiesta Restaurant Group Inc (NASDAQ:FRGI), Evelo Biosciences, Inc. (NASDAQ:EVLO), and HOOKIPA Pharma Inc. (NASDAQ:HOOK). This group of stocks' market valuations resemble TGLS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCRN,15,22935,3 JYNT,17,69411,1 GWRS,4,5120,1 CALA,14,46957,0 FRGI,14,100160,0 EVLO,3,7804,-3 HOOK,7,34432,-2 Average,10.6,40974,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.6 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $7 million in TGLS's case. The Joint Corp. (NASDAQ:JYNT) is the most popular stock in this table. On the other hand Evelo Biosciences, Inc. (NASDAQ:EVLO) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Tecnoglass Inc. (NASDAQ:TGLS) is even less popular than EVLO. Our overall hedge fund sentiment score for TGLS is 15.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on TGLS as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on TGLS as the stock returned 16.6% since Q3 (through November 23rd) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.