Is Tocagen Inc. (NASDAQ:TOCA) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Tocagen Inc. (NASDAQ:TOCA) a buy here? Money managers are selling. The number of long hedge fund positions fell by 4 in recent months. Our calculations also showed that TOCA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TOCA was in 6 hedge funds' portfolios at the end of the third quarter of 2019. There were 10 hedge funds in our database with TOCA positions at the end of the previous quarter. Video: Click the image to 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 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 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 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.
[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. Keeping this in mind we're going to review the key hedge fund action surrounding Tocagen Inc. (NASDAQ:TOCA).
What have hedge funds been doing with Tocagen Inc. (NASDAQ:TOCA)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TOCA over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Brian Sheehy's Iszo Capital has the most valuable position in Tocagen Inc. (NASDAQ:TOCA), worth close to $0.4 million, comprising 0.5% of its total 13F portfolio. Renaissance Technologies, with a $0.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish contain David E. Shaw's D E Shaw, Ken Griffin's Citadel Investment Group and Nathaniel August's Mangrove Partners. In terms of the portfolio weights assigned to each position Iszo Capital allocated the biggest weight to Tocagen Inc. (NASDAQ:TOCA), around 0.5% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, setting aside 0.0048 percent of its 13F equity portfolio to TOCA.
Due to the fact that Tocagen Inc. (NASDAQ:TOCA) has witnessed a decline in interest from the entirety of the hedge funds we track, it's safe to say that there is a sect of fund managers who were dropping their full holdings last quarter. Intriguingly, Jerome Pfund and Michael Sjostrom's Sectoral Asset Management dumped the largest stake of the 750 funds followed by Insider Monkey, valued at close to $4.5 million in stock, and Jim Tananbaum's Foresite Capital was right behind this move, as the fund cut about $3.8 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Tocagen Inc. (NASDAQ:TOCA) but similarly valued. These stocks are SIFCO Industries, Inc. (NYSE:SIF), American Shared Hospital Services (NYSE:AMS), CYANOTECH CORP (NASDAQ:CYAN), and Comstock Holding Companies, Inc. (NASDAQ:CHCI). This group of stocks' market values resemble TOCA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SIF,5,1530,1 AMS,1,41,0 CYAN,1,358,-1 CHCI,1,177,-1 Average,2,527,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $1 million in TOCA's case. SIFCO Industries, Inc. (NYSE:SIF) is the most popular stock in this table. On the other hand American Shared Hospital Services (NYSE:AMS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Tocagen Inc. (NASDAQ:TOCA) is more popular among hedge funds. 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 TOCA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TOCA were disappointed as the stock returned -1.1% 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.