Hedge Funds Are Crazy About Tilray, Inc. (TLRY)

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Tilray, Inc. (NASDAQ:TLRY).

Tilray, Inc. (NASDAQ:TLRY) was in 21 hedge funds’ portfolios at the end of March. The all time high for this statistic was previously 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. TLRY shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. There were 17 hedge funds in our database with TLRY holdings at the end of December. Our calculations also showed that TLRY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 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.

Daniel Och, Founder of OZ Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to view the new hedge fund action regarding Tilray, Inc. (NASDAQ:TLRY).

Do Hedge Funds Think TLRY Is A Good Stock To Buy Now?

At first quarter’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TLRY over the last 23 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Matthew Halbower’s Pentwater Capital Management has the number one call position in Tilray, Inc. (NASDAQ:TLRY), worth close to $110.3 million, amounting to 1.1% of its total 13F portfolio. On Pentwater Capital Management’s heels is Ken Griffin of Citadel Investment Group, with a $67.4 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass D. E. Shaw’s D E Shaw, Matthew Halbower’s Pentwater Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Pentwater Capital Management allocated the biggest weight to Tilray, Inc. (NASDAQ:TLRY), around 1.05% of its 13F portfolio. Graham Capital Management is also relatively very bullish on the stock, designating 0.94 percent of its 13F equity portfolio to TLRY.

Now, some big names were leading the bulls’ herd. Pentwater Capital Management, managed by Matthew Halbower, created the most outsized call position in Tilray, Inc. (NASDAQ:TLRY). Pentwater Capital Management had $110.3 million invested in the company at the end of the quarter. Matthew Halbower’s Pentwater Capital Management also initiated a $59.1 million position during the quarter. The following funds were also among the new TLRY investors: Carl Tiedemann and Michael Tiedemann’s TIG Advisors, D. E. Shaw’s D E Shaw, and Sander Gerber’s Hudson Bay Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Tilray, Inc. (NASDAQ:TLRY). We will take a look at Murphy USA Inc. (NYSE:MUSA), SeaWorld Entertainment Inc (NYSE:SEAS), Millicom International Cellular S.A. (NASDAQ:TIGO), Progyny, Inc. (NASDAQ:PGNY), New Relic Inc (NYSE:NEWR), EnerSys (NYSE:ENS), and Umpqua Holdings Corp (NASDAQ:UMPQ). This group of stocks’ market caps are similar to TLRY’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $560 million. That figure was $258 million in TLRY’s case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Millicom International Cellular S.A. (NASDAQ:TIGO) is the least popular one with only 5 bullish hedge fund positions. Tilray, Inc. (NASDAQ:TLRY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TLRY is 62.5. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately TLRY wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TLRY investors were disappointed as the stock returned -38.8% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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