Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of TCR2 Therapeutics Inc. (NASDAQ:TCRR).
TCR2 Therapeutics Inc. (NASDAQ:TCRR) has seen a decrease in hedge fund interest lately. Our calculations also showed that TCRR isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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 stocks that are in our short portfolio.
Lei Zhang of Hillhouse Capital Management
We’re going to take a look at the latest hedge fund action encompassing TCR2 Therapeutics Inc. (NASDAQ:TCRR).
Hedge fund activity in TCR2 Therapeutics Inc. (NASDAQ:TCRR)
At Q3’s end, a total of 2 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -50% from the second quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in TCRR a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Redmile Group was the largest shareholder of TCR2 Therapeutics Inc. (NASDAQ:TCRR), with a stake worth $26.9 million reported as of the end of September. Trailing Redmile Group was Hillhouse Capital Management, which amassed a stake valued at $4.9 million.
Judging by the fact that TCR2 Therapeutics Inc. (NASDAQ:TCRR) has faced bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of funds who sold off their entire stakes in the third quarter. Intriguingly, Israel Englander’s Millennium Management said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, comprising about $2 million in stock, and Oleg Nodelman’s EcoR1 Capital was right behind this move, as the fund dumped about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as TCR2 Therapeutics Inc. (NASDAQ:TCRR) but similarly valued. We will take a look at Park Electrochemical Corp. (NYSE:PKE), American Public Education, Inc. (NASDAQ:APEI), Just Energy Group, Inc. (NYSE:JE), and Vista Outdoor Inc (NYSE:VSTO). This group of stocks’ market caps match TCRR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PKE | 12 | 82109 | 3 |
| APEI | 14 | 56912 | 1 |
| JE | 8 | 32204 | -5 |
| VSTO | 14 | 68721 | -2 |
| Average | 12 | 59987 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $32 million in TCRR’s case. American Public Education, Inc. (NASDAQ:APEI) is the most popular stock in this table. On the other hand Just Energy Group, Inc. (NYSE:JE) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks TCR2 Therapeutics Inc. (NASDAQ:TCRR) is even less popular than JE. Hedge funds clearly dropped the ball on TCRR 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. A small number of hedge funds were also right about betting on TCRR as the stock returned 9.4% during the fourth quarter (through 11/22) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.