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In this article we are going to use hedge fund sentiment as a tool and determine whether Tilray, Inc. (NASDAQ:TLRY) 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.
Is Tilray (TLRY) a good stock to buy now? TLRY investors should be aware of a decrease in activity from the world's largest hedge funds recently. Tilray, Inc. (NASDAQ:TLRY) was in 6 hedge funds' portfolios at the end of September. The all time high for this statistics is 15. There were 11 hedge funds in our database with TLRY holdings at the end of June. Our calculations also showed that TLRY 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.
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 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 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.
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 15 best blue chip stocks 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. Keeping this in mind let's analyze the new hedge fund action surrounding Tilray, Inc. (NASDAQ:TLRY).
How have hedgies been trading Tilray, Inc. (NASDAQ:TLRY)?
Heading into the fourth quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -45% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in TLRY a year ago. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in Tilray, Inc. (NASDAQ:TLRY), which was worth $15.2 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $14 million worth of shares. Antara Capital, Antara Capital, and HBK Investments 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 Antara Capital allocated the biggest weight to Tilray, Inc. (NASDAQ:TLRY), around 0.54% of its 13F portfolio. Antara Capital is also relatively very bullish on the stock, setting aside 0.14 percent of its 13F equity portfolio to TLRY.
Judging by the fact that Tilray, Inc. (NASDAQ:TLRY) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of funds who sold off their full holdings in the third quarter. At the top of the heap, Shashin Shah's Think Investments cut the biggest position of the 750 funds tracked by Insider Monkey, worth about $7.8 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund dumped about $0.3 million worth. These moves are important to note, as total hedge fund interest fell by 5 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Tilray, Inc. (NASDAQ:TLRY) but similarly valued. We will take a look at Saul Centers Inc (NYSE:BFS), ARMOUR Residential REIT, Inc. (NYSE:ARR), Ready Capital Corporation (NYSE:RC), Inozyme Pharma, Inc. (NASDAQ:INZY), Cellcom Israel Ltd. (NYSE:CEL), Knoll Inc (NYSE:KNL), and P.H. Glatfelter Company (NYSE:GLT). All of these stocks' market caps match TLRY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BFS,7,23157,0 ARR,11,21680,0 RC,10,27304,0 INZY,13,154774,13 CEL,2,19824,0 KNL,7,4649,0 GLT,8,15418,2 Average,8.3,38115,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.3 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $18 million in TLRY's case. Inozyme Pharma, Inc. (NASDAQ:INZY) is the most popular stock in this table. On the other hand Cellcom Israel Ltd. (NYSE:CEL) is the least popular one with only 2 bullish hedge fund positions. Tilray, Inc. (NASDAQ:TLRY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TLRY is 30.2. 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. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on TLRY as the stock returned 75.3% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.