We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Tyler Technologies, Inc. (NYSE:TYL).
Is Tyler Technologies, Inc. (NYSE:TYL) a worthy investment now? Hedge funds are becoming less hopeful. The number of long hedge fund positions retreated by 10 in recent months. Our calculations also showed that TYL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To the average investor there are numerous indicators investors employ to evaluate publicly traded companies. A pair of the most useful indicators are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can trounce the broader indices by a superb amount (see the details here).
Kevin Oram of Praesidium Investment Management Company
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the fresh hedge fund action encompassing Tyler Technologies, Inc. (NYSE:TYL).
How have hedgies been trading Tyler Technologies, Inc. (NYSE:TYL)?
At the end of the fourth quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -32% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in TYL a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Praesidium Investment Management Company held the most valuable stake in Tyler Technologies, Inc. (NYSE:TYL), which was worth $176.3 million at the end of the third quarter. On the second spot was RGM Capital which amassed $138.4 million worth of shares. Citadel Investment Group, Bares Capital Management, and Two Creeks Capital 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 Praesidium Investment Management Company allocated the biggest weight to Tyler Technologies, Inc. (NYSE:TYL), around 10.91% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, setting aside 7.91 percent of its 13F equity portfolio to TYL.
Due to the fact that Tyler Technologies, Inc. (NYSE:TYL) has witnessed declining sentiment from the smart money, it’s easy to see that there exists a select few hedgies who sold off their entire stakes by the end of the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management dropped the largest investment of the 750 funds tracked by Insider Monkey, totaling about $29.5 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also said goodbye to its stock, about $18.8 million worth. These moves are interesting, as total hedge fund interest dropped by 10 funds by the end of the third 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 EPAM Systems Inc (NYSE:EPAM), Molson Coors Beverage Company (NYSE:TAP), Ally Financial Inc (NYSE:ALLY), and Allegion plc (NYSE:ALLE). This group of stocks’ market valuations match TYL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EPAM | 28 | 324342 | 0 |
| TAP | 31 | 403494 | 5 |
| ALLY | 54 | 1809697 | -1 |
| ALLE | 25 | 502977 | -3 |
| Average | 34.5 | 760128 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $760 million. That figure was $529 million in TYL’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Allegion plc (NYSE:ALLE) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Tyler Technologies, Inc. (NYSE:TYL) is even less popular than ALLE. Hedge funds clearly dropped the ball on TYL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on TYL as the stock returned -11.7% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
