Did Hedge Funds Make The Right Call On Trillium Therapeutics Inc. (TRIL) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Trillium Therapeutics Inc. (NASDAQ:TRIL) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Trillium Therapeutics Inc. (NASDAQ:TRIL) a safe investment right now? The best stock pickers were becoming more confident. The number of long hedge fund positions advanced by 22 recently. Our calculations also showed that TRIL isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

Peter Kolchinsky of RA Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to take a look at the fresh hedge fund action encompassing Trillium Therapeutics Inc. (NASDAQ:TRIL).

What does smart money think about Trillium Therapeutics Inc. (NASDAQ:TRIL)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 733% from the fourth quarter of 2019. By comparison, 5 hedge funds held shares or bullish call options in TRIL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, RA Capital Management was the largest shareholder of Trillium Therapeutics Inc. (NASDAQ:TRIL), with a stake worth $25.7 million reported as of the end of September. Trailing RA Capital Management was Avoro Capital Advisors (venBio Select Advisor), which amassed a stake valued at $20 million. Citadel Investment Group, Frazier Healthcare Partners, and Vivo Capital 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 Logos Capital allocated the biggest weight to Trillium Therapeutics Inc. (NASDAQ:TRIL), around 1.53% of its 13F portfolio. Frazier Healthcare Partners is also relatively very bullish on the stock, setting aside 1.08 percent of its 13F equity portfolio to TRIL.

As industrywide interest jumped, key money managers have jumped into Trillium Therapeutics Inc. (NASDAQ:TRIL) headfirst. RA Capital Management, managed by Peter Kolchinsky, created the biggest position in Trillium Therapeutics Inc. (NASDAQ:TRIL). RA Capital Management had $25.7 million invested in the company at the end of the quarter. Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor) also initiated a $20 million position during the quarter. The other funds with brand new TRIL positions are Ken Griffin’s Citadel Investment Group, Alan Frazier’s Frazier Healthcare Partners, and Albert Cha and Frank Kung’s Vivo Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Trillium Therapeutics Inc. (NASDAQ:TRIL). We will take a look at dMY Technology Group, Inc. (NYSE:DMYT), One Liberty Properties, Inc. (NYSE:OLP), Granite Point Mortgage Trust Inc. (NYSE:GPMT), and South Plains Financial, Inc. (NASDAQ:SPFI). This group of stocks’ market values are closest to TRIL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $122 million in TRIL’s case. dMY Technology Group, Inc. (NYSE:DMYT) is the most popular stock in this table. On the other hand South Plains Financial, Inc. (NASDAQ:SPFI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Trillium Therapeutics Inc. (NASDAQ:TRIL) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on TRIL as the stock returned 100.2% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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