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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on September 30th, about a month before the elections. We at Insider Monkey have made an extensive database of more than 817 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Tyler Technologies, Inc. (NYSE:TYL) based on those filings.
Is TYL a good stock to buy? Tyler Technologies, Inc. (NYSE:TYL) has experienced a decrease in support from the world's most elite money managers lately. Tyler Technologies, Inc. (NYSE:TYL) was in 31 hedge funds' portfolios at the end of September. The all time high for this statistic is 36. There were 36 hedge funds in our database with TYL holdings at the end of June. Our calculations also showed that TYL 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.
Kevin Oram of Praesidium Investment Management Company
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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 take a gander at the latest hedge fund action surrounding Tyler Technologies, Inc. (NYSE:TYL).
Do Hedge Funds Think TYL Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TYL over the last 21 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Tyler Technologies, Inc. (NYSE:TYL) was held by Skye Global Management, which reported holding $116.8 million worth of stock at the end of September. It was followed by Praesidium Investment Management Company with a $97.3 million position. Other investors bullish on the company included RGM Capital, Echo Street Capital Management, and Select Equity Group. In terms of the portfolio weights assigned to each position Praesidium Investment Management Company allocated the biggest weight to Tyler Technologies, Inc. (NYSE:TYL), around 5.81% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, designating 3.41 percent of its 13F equity portfolio to TYL.
Judging by the fact that Tyler Technologies, Inc. (NYSE:TYL) has witnessed bearish sentiment from the smart money, logic holds that there was a specific group of funds who were dropping their positions entirely last quarter. Intriguingly, Neal Nathani and Darren Dinneen's Totem Point Management said goodbye to the largest stake of the "upper crust" of funds monitored by Insider Monkey, worth about $11.1 million in stock, and Principal Global Investors's Columbus Circle Investors was right behind this move, as the fund sold off about $9.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 5 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Tyler Technologies, Inc. (NYSE:TYL) but similarly valued. These stocks are Nomura Holdings, Inc. (NYSE:NMR), Royal Caribbean Group (NYSE:RCL), Sun Communities Inc (NYSE:SUI), Extra Space Storage, Inc. (NYSE:EXR), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), and Cardinal Health, Inc. (NYSE:CAH). This group of stocks' market caps match TYL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NMR,6,18282,1 RCL,30,418133,-1 SUI,31,350701,1 EXR,27,280182,0 BMRN,44,1572770,-1 CHRW,22,531478,-6 CAH,45,1006225,-4 Average,29.3,596824,-1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $597 million. That figure was $520 million in TYL's case. Cardinal Health, Inc. (NYSE:CAH) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 6 bullish hedge fund positions. Tyler Technologies, Inc. (NYSE:TYL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TYL is 57.9. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on TYL as the stock returned 28.8% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.