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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Tandem Diabetes Care Inc (NASDAQ:TNDM).
Is TNDM stock a buy? Money managers were taking a pessimistic view. The number of long hedge fund positions fell by 4 lately. Tandem Diabetes Care Inc (NASDAQ:TNDM) was in 26 hedge funds' portfolios at the end of December. The all time high for this statistic is 39. Our calculations also showed that TNDM isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 124 percentage points since March 2017 (see the details here).
Minhua Zhang of Weld Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 view the new hedge fund action surrounding Tandem Diabetes Care Inc (NASDAQ:TNDM).
Do Hedge Funds Think TNDM Is A Good Stock To Buy Now?
At Q4's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the third quarter of 2020. By comparison, 39 hedge funds held shares or bullish call options in TNDM a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Sectoral Asset Management was the largest shareholder of Tandem Diabetes Care Inc (NASDAQ:TNDM), with a stake worth $45.1 million reported as of the end of December. Trailing Sectoral Asset Management was Renaissance Technologies, which amassed a stake valued at $30.3 million. Columbus Circle Investors, Intrinsic Edge Capital, and Millennium Management 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 Andar Capital allocated the biggest weight to Tandem Diabetes Care Inc (NASDAQ:TNDM), around 6.31% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, earmarking 3.18 percent of its 13F equity portfolio to TNDM.
Because Tandem Diabetes Care Inc (NASDAQ:TNDM) has witnessed declining sentiment from the smart money, logic holds that there lies a certain "tier" of hedgies that slashed their full holdings last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management dumped the largest stake of the 750 funds followed by Insider Monkey, worth an estimated $32.4 million in stock. Brad Farber's fund, Atika Capital, also sold off its stock, about $13.4 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Tandem Diabetes Care Inc (NASDAQ:TNDM) but similarly valued. We will take a look at Sonoco Products Company (NYSE:SON), The AZEK Company Inc. (NYSE:AZEK), Choice Hotels International, Inc. (NYSE:CHH), AerCap Holdings N.V. (NYSE:AER), Janus Henderson Group plc (NYSE:JHG), Advanced Drainage Systems Inc. (NYSE:WMS), and American Campus Communities, Inc. (NYSE:ACC). This group of stocks' market caps match TNDM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SON,20,124098,-9 AZEK,23,261270,-11 CHH,15,120859,-12 AER,40,1395460,2 JHG,22,780607,1 WMS,25,965545,0 ACC,15,242986,-6 Average,22.9,555832,-5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.9 hedge funds with bullish positions and the average amount invested in these stocks was $556 million. That figure was $232 million in TNDM's case. AerCap Holdings N.V. (NYSE:AER) is the most popular stock in this table. On the other hand Choice Hotels International, Inc. (NYSE:CHH) is the least popular one with only 15 bullish hedge fund positions. Tandem Diabetes Care Inc (NASDAQ:TNDM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TNDM is 43. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately TNDM wasn't nearly as popular as these 30 stocks and hedge funds that were betting on TNDM were disappointed as the stock returned -4.9% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.