Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can 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 over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about T2 Biosystems Inc (NASDAQ:TTOO).
Is T2 Biosystems Inc (NASDAQ:TTOO) a buy here? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund positions retreated by 3 in recent months. Our calculations also showed that TTOO isn’t among the 30 most popular stocks among hedge funds. TTOO was in 14 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with TTOO positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a glance at the key hedge fund action surrounding 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 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TTOO over the last 13 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Richard Mashaal’s Rima Senvest Management has the most valuable position in T2 Biosystems Inc (NASDAQ:TTOO), worth close to $20.6 million, accounting for 1.6% of its total 13F portfolio. Sitting at the No. 2 spot is Tiger Management, led by Julian Robertson, holding a $7.2 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of Philip Hempleman’s Ardsley Partners, Israel Englander’s Millennium Management and Jim Simons’s Renaissance Technologies.
Seeing as T2 Biosystems Inc (NASDAQ:TTOO) has experienced falling interest from hedge fund managers, it’s safe to say that there was a specific group of fund managers who sold off their full holdings last quarter. Interestingly, Efrem Kamen’s Pura Vida Investments cut the biggest stake of the 700 funds watched by Insider Monkey, totaling an estimated $1.2 million in stock. Leon Cooperman’s fund, Omega Advisors, also said goodbye to its stock, about $1.1 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as T2 Biosystems Inc (NASDAQ:TTOO) but similarly valued. These stocks are Immersion Corporation (NASDAQ:IMMR), Federated National Holding Co (NASDAQ:FNHC), Geron Corporation (NASDAQ:GERN), and The Lovesac Company (NASDAQ:LOVE). All of these stocks’ market caps resemble TTOO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMMR | 16 | 102276 | -1 |
| FNHC | 8 | 42433 | 2 |
| GERN | 8 | 3819 | 0 |
| LOVE | 8 | 29145 | 1 |
| Average | 10 | 44418 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $48 million in TTOO’s case. Immersion Corporation (NASDAQ:IMMR) is the most popular stock in this table. On the other hand Federated National Holding Co (NASDAQ:FNHC) is the least popular one with only 8 bullish hedge fund positions. T2 Biosystems Inc (NASDAQ:TTOO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard IMMR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
