Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 34.7% in 2019 (through November 22) and outperformed the broader market benchmark by 8.5 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
TransGlobe Energy Corporation (NASDAQ:TGA) was in 3 hedge funds’ portfolios at the end of the third quarter of 2019. TGA has experienced a decrease in hedge fund interest in recent months. There were 4 hedge funds in our database with TGA positions at the end of the previous quarter. Our calculations also showed that TGA isn’t among the 30 most popular stocks among hedge funds.
In the eyes of most market participants, hedge funds are seen as slow, old investment tools of years past. While there are over 8000 funds with their doors open at present, We hone in on the bigwigs of this group, around 750 funds. Most estimates calculate that this group of people administer the lion’s share of all hedge funds’ total capital, and by shadowing their first-class stock picks, Insider Monkey has unsheathed numerous investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
John Overdeck of Two Sigma Advisors
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the fresh hedge fund action surrounding TransGlobe Energy Corporation (NASDAQ:TGA).
How are hedge funds trading TransGlobe Energy Corporation (NASDAQ:TGA)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TGA over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of TransGlobe Energy Corporation (NASDAQ:TGA), with a stake worth $4.1 million reported as of the end of September. Trailing Renaissance Technologies was Fondren Management, which amassed a stake valued at $2.4 million. Two Sigma Advisors was 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 Fondren Management allocated the biggest weight to TransGlobe Energy Corporation (NASDAQ:TGA), around 1.96% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0035 percent of its 13F equity portfolio to TGA.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified TGA as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks similar to TransGlobe Energy Corporation (NASDAQ:TGA). These stocks are Contango Oil & Gas Company (NYSE:MCF), Fennec Pharmaceuticals Inc. (NASDAQ:FENC), Exfo Inc (NASDAQ:EXFO), and Checkpoint Therapeutics, Inc. (NASDAQ:CKPT). All of these stocks’ market caps are closest to TGA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MCF | 3 | 1003 | -2 |
| FENC | 6 | 33963 | 0 |
| EXFO | 1 | 4436 | 0 |
| CKPT | 2 | 596 | -2 |
| Average | 3 | 10000 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $7 million in TGA’s case. Fennec Pharmaceuticals Inc. (NASDAQ:FENC) is the most popular stock in this table. On the other hand Exfo Inc (NASDAQ:EXFO) is the least popular one with only 1 bullish hedge fund positions. TransGlobe Energy Corporation (NASDAQ:TGA) 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately TGA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TGA investors were disappointed as the stock returned -14.3% during the fourth quarter (through 11/22) 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.
