We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Tyler Technologies, Inc. (NYSE:TYL).
Tyler Technologies, Inc. (NYSE:TYL) investors should be aware of an increase in enthusiasm from smart money in recent months. TYL was in 26 hedge funds’ portfolios at the end of the third quarter of 2019. There were 24 hedge funds in our database with TYL holdings at the end of the previous quarter. Our calculations also showed that TYL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
Kevin Oram of Praesidium Investment Management
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. Let’s check out the latest hedge fund action regarding Tyler Technologies, Inc. (NYSE:TYL).
Hedge fund activity in Tyler Technologies, Inc. (NYSE:TYL)
At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the second quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in TYL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Tyler Technologies, Inc. (NYSE:TYL) was held by Praesidium Investment Management, which reported holding $158.7 million worth of stock at the end of September. It was followed by RGM Capital with a $126.1 million position. Other investors bullish on the company included Citadel Investment Group, Two Creeks Capital Management, and Bares Capital Management. In terms of the portfolio weights assigned to each position Praesidium Investment Management allocated the biggest weight to Tyler Technologies, Inc. (NYSE:TYL), around 10.41% of its portfolio. RGM Capital is also relatively very bullish on the stock, designating 8.39 percent of its 13F equity portfolio to TYL.
As industrywide interest jumped, some big names have been driving this bullishness. Columbus Circle Investors, managed by Principal Global Investors, established the largest position in Tyler Technologies, Inc. (NYSE:TYL). Columbus Circle Investors had $26.6 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $6.3 million position during the quarter. The following funds were also among the new TYL investors: Vikas Lunia’s Lunia Capital, David E. Shaw’s D E Shaw, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now review hedge fund activity in other stocks similar to Tyler Technologies, Inc. (NYSE:TYL). These stocks are Insulet Corporation (NASDAQ:PODD), Altaba Inc. (NASDAQ:AABA), Eastman Chemical Company (NYSE:EMN), and Domino’s Pizza, Inc. (NYSE:DPZ). This group of stocks’ market values resemble TYL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PODD | 37 | 500045 | 13 |
| AABA | 48 | 4699502 | -11 |
| EMN | 27 | 409073 | 4 |
| DPZ | 36 | 1932455 | 9 |
| Average | 37 | 1885269 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1885 million. That figure was $603 million in TYL’s case. Altaba Inc. (NASDAQ:AABA) is the most popular stock in this table. On the other hand Eastman Chemical Company (NYSE:EMN) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Tyler Technologies, Inc. (NYSE:TYL) is even less popular than EMN. Hedge funds clearly dropped the ball on TYL 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on TYL as the stock returned 10.5% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
