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Is Trupanion Inc (TRUP) Going To Burn These Hedge Funds ?

Abigail Fisher

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 4 percentage points through September 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Trupanion Inc (NASDAQ:TRUP) shareholders have witnessed a decrease in enthusiasm from smart money of late. TRUP was in 10 hedge funds' portfolios at the end of June. There were 13 hedge funds in our database with TRUP positions at the end of the previous quarter. Our calculations also showed that TRUP isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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' 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

TRUP_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the latest hedge fund action encompassing Trupanion Inc (NASDAQ:TRUP).

Hedge fund activity in Trupanion Inc (NASDAQ:TRUP)

At Q2's end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in TRUP over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Tom Gayner

More specifically, Nine Ten Partners was the largest shareholder of Trupanion Inc (NASDAQ:TRUP), with a stake worth $109.1 million reported as of the end of March. Trailing Nine Ten Partners was Greenlea Lane Capital, which amassed a stake valued at $22.8 million. Royce & Associates, StackLine Partners, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Because Trupanion Inc (NASDAQ:TRUP) has faced declining sentiment from the aggregate hedge fund industry, we can see that there were a few hedgies who sold off their full holdings in the second quarter. Intriguingly, David Harding's Winton Capital Management dumped the largest position of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $0.4 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dropped its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds in the second quarter.

Let's check out hedge fund activity in other stocks similar to Trupanion Inc (NASDAQ:TRUP). We will take a look at Kornit Digital Ltd. (NASDAQ:KRNT), Sleep Number Corporation (NASDAQ:SNBR), Kearny Financial Corp. (NASDAQ:KRNY), and Amerisafe, Inc. (NASDAQ:AMSF). This group of stocks' market valuations are closest to TRUP's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KRNT,13,57228,3 SNBR,16,114555,-4 KRNY,13,139904,-3 AMSF,12,28328,0 Average,13.5,85004,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $163 million in TRUP's case. Sleep Number Corporation (NASDAQ:SNBR) is the most popular stock in this table. On the other hand Amerisafe, Inc. (NASDAQ:AMSF) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Trupanion Inc (NASDAQ:TRUP) is even less popular than AMSF. Hedge funds dodged a bullet by taking a bearish stance towards TRUP. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TRUP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TRUP investors were disappointed as the stock returned -29.6% during the third 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 many of these stocks already outperformed the market so far in 2019.

Disclosure: None. This article was originally published at Insider Monkey.

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