Hedge Funds Are Fleeing The Sinking T2 Biosystems Inc (TTOO)

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

In the case of T2 Biosystems Inc (NASDAQ:TTOO), smart money was heading for the exits in the third quarter, as shares sank by 48% during the period. TTOO was in 7 hedge funds’ portfolios at the end of the third quarter of 2015, down from 10 hedge funds in our database with TTOO positions at the end of the second quarter. On the other hand, the value of their holdings sank by just under 50% during the quarter, nearly in-line with the stock, so the overall share ownership remained nearly unchanged. At the end of this article we will also compare TTOO to other stocks including Pennantpark Floating Rate Capital Ltd (NASDAQ:PFLT), Gafisa SA (ADR) (NYSE:GFA), and Sizmek Inc (NASDAQ:SZMK) to get a better sense of its popularity.

In today’s marketplace there are tons of tools investors put to use to grade stocks. A duo of the most innovative tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the elite fund managers can beat the market by a superb amount (see the details here).

With all of this in mind, we’re going to take a gander at the key action encompassing T2 Biosystems Inc (NASDAQ:TTOO).

What have hedge funds been doing with T2 Biosystems Inc (NASDAQ:TTOO)?

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a 30% fall from the second quarter. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings significantly (or had already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Aisling Capital, managed by Dennis Purcell, holds the number one position in T2 Biosystems Inc (NASDAQ:TTOO). Aisling Capital has a $22.1 million position in the stock, comprising 3.9% of its 13F portfolio. Sitting in the No. 2 spot is Richard Mashaal of RIMA Senvest Management, with a $5.2 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism encompass Steve Cohen’s Point72 Asset Management, Israel Englander’s Millennium Management, and Hal Mintz’s Sabby Capital.

Judging by the fact that T2 Biosystems Inc (NASDAQ:TTOO) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedge funds who sold off their full holdings last quarter. It’s worth mentioning that Joseph A. Jolson’s Harvest Capital Strategies said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, valued at an estimated $4.5 million in stock, and Peter Kolchinsky’s RA Capital Management was right behind this move, as the fund said goodbye to about $2.2 million worth of shares. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as T2 Biosystems Inc (NASDAQ:TTOO) but similarly valued. We will take a look at Pennantpark Floating Rate Capital Ltd (NASDAQ:PFLT), Gafisa SA (ADR) (NYSE:GFA), Sizmek Inc (NASDAQ:SZMK), and Autobytel Inc. (NASDAQ:ABTL). All of these stocks’ market caps are similar to TTOO’s market cap.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $35 million in TTOO’s case. Autobytel Inc. (NASDAQ:ABTL) is the most popular stock in this table. On the other hand Gafisa SA (ADR) (NYSE:GFA) is the least popular one with only 6 bullish hedge fund positions. T2 Biosystems Inc (NASDAQ:TTOO) is not the least popular stock in this group but hedge fund interest is still below average and falling. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ABTL might be a better candidate to consider for a long position.