Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Tilly’s Inc (NYSE:TLYS).
Is Tilly’s Inc (NYSE:TLYS) a superb investment now? The smart money is becoming hopeful. The number of bullish hedge fund positions inched up by 9 lately. Our calculations also showed that TLYS isn’t among the 30 most popular stocks among hedge funds. TLYS was in 21 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with TLYS holdings 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.
We’re going to take a look at the new hedge fund action surrounding Tilly’s Inc (NYSE:TLYS).
What have hedge funds been doing with Tilly’s Inc (NYSE:TLYS)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 75% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TLYS over the last 13 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the largest position in Tilly’s Inc (NYSE:TLYS). Renaissance Technologies has a $19.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Wilmot B. Harkey and Daniel Mack of Nantahala Capital Management, with a $9.7 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism encompass Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group and D. E. Shaw’s D E Shaw.
Now, key money managers were leading the bulls’ herd. Driehaus Capital, managed by Richard Driehaus, created the biggest position in Tilly’s Inc (NYSE:TLYS). Driehaus Capital had $5.7 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $5.5 million position during the quarter. The other funds with brand new TLYS positions are Benjamin A. Smith’s Laurion Capital Management, Steve Cohen’s Point72 Asset Management, and David Costen Haley’s HBK Investments.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Tilly’s Inc (NYSE:TLYS) but similarly valued. These stocks are Hometrust Bancshares Inc (NASDAQ:HTBI), Mercantile Bank Corp. (NASDAQ:MBWM), Atento SA (NYSE:ATTO), and ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS). This group of stocks’ market valuations are similar to TLYS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTBI | 9 | 74161 | 0 |
| MBWM | 8 | 32045 | 0 |
| ATTO | 7 | 8588 | -2 |
| IMOS | 2 | 25954 | 0 |
| Average | 6.5 | 35187 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $92 million in TLYS’s case. Hometrust Bancshares Inc (NASDAQ:HTBI) is the most popular stock in this table. On the other hand ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Tilly’s Inc (NYSE:TLYS) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
