“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards T2 Biosystems Inc (NASDAQ:TTOO).
Is T2 Biosystems Inc (NASDAQ:TTOO) a buy here? Prominent investors are reducing their bets on the stock. The number of long hedge fund positions went down by 2 in recent months. Our calculations also showed that TTOO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TTOO was in 5 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with TTOO holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a gander at the new hedge fund action surrounding T2 Biosystems Inc (NASDAQ:TTOO).
How have hedgies been trading T2 Biosystems Inc (NASDAQ:TTOO)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in TTOO a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in T2 Biosystems Inc (NASDAQ:TTOO) was held by Millennium Management, which reported holding $0.6 million worth of stock at the end of September. It was followed by Marshall Wace with a $0.5 million position. Other investors bullish on the company included Levin Capital Strategies, LMR Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Levin Capital Strategies allocated the biggest weight to T2 Biosystems Inc (NASDAQ:TTOO), around 0.02% of its 13F portfolio. LMR Partners is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to TTOO.
Judging by the fact that T2 Biosystems Inc (NASDAQ:TTOO) has witnessed falling interest from hedge fund managers, it’s easy to see that there exists a select few money managers who sold off their entire stakes heading into Q4. Interestingly, Richard Mashaal’s Rima Senvest Management dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $1.5 million in stock, and Philip Hempleman’s Ardsley Partners was right behind this move, as the fund cut about $1.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s now review 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 Gamida Cell Ltd. (NASDAQ:GMDA), Ring Energy Inc (NYSE:REI), Abeona Therapeutics Inc (NASDAQ:ABEO), and Kaixin Auto Holdings (NASDAQ:KXIN). This group of stocks’ market valuations match TTOO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GMDA | 6 | 11160 | -1 |
| REI | 8 | 2213 | -3 |
| ABEO | 15 | 32925 | -2 |
| KXIN | 3 | 203 | -1 |
| Average | 8 | 11625 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $1 million in TTOO’s case. Abeona Therapeutics Inc (NASDAQ:ABEO) is the most popular stock in this table. On the other hand Kaixin Auto Holdings (NASDAQ:KXIN) is the least popular one with only 3 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. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TTOO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TTOO investors were disappointed as the stock returned -45.6% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
