Hedge Funds Cautiously Watching TELA Bio, Inc. (TELA)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of TELA Bio, Inc. (NASDAQ:TELA).

TELA Bio, Inc. (NASDAQ:TELA) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of the first quarter of 2020. At the end of this article we will also compare TELA to other stocks including Valaris Plc (NYSE:VAL), SB Financial Group, Inc. (NASDAQ:SBFG), and Alithya Group inc. (NASDAQ:ALYA) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 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.

Samuel Isaly of OrbiMed Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the key hedge fund action surrounding TELA Bio, Inc. (NASDAQ:TELA).

How have hedgies been trading TELA Bio, Inc. (NASDAQ:TELA)?

Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in TELA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Among these funds, OrbiMed Advisors held the most valuable stake in TELA Bio, Inc. (NASDAQ:TELA), which was worth $23.7 million at the end of the third quarter. On the second spot was Alyeska Investment Group which amassed $1.5 million worth of shares. Opaleye Management, Pentwater Capital Management, and Millennium Management 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 OrbiMed Advisors allocated the biggest weight to TELA Bio, Inc. (NASDAQ:TELA), around 0.4% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, dishing out 0.17 percent of its 13F equity portfolio to TELA.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Parkman Healthcare Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).

Let’s now take a look at hedge fund activity in other stocks similar to TELA Bio, Inc. (NASDAQ:TELA). We will take a look at Valaris Plc (NYSE:VAL), SB Financial Group, Inc. (NASDAQ:SBFG), Alithya Group inc. (NASDAQ:ALYA), and Exantas Capital Corp. (NYSE:XAN). All of these stocks’ market caps are similar to TELA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $27 million in TELA’s case. Valaris Plc (NYSE:VAL) is the most popular stock in this table. On the other hand SB Financial Group, Inc. (NASDAQ:SBFG) is the least popular one with only 4 bullish hedge fund positions. TELA Bio, Inc. (NASDAQ:TELA) is not the least popular stock in this group but hedge fund interest is still below average. 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 gained 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on TELA as the stock returned 154.6% during the second quarter and outperformed the market by an even larger margin.

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