With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Translate Bio, Inc. (NASDAQ:TBIO).
Translate Bio, Inc. (NASDAQ:TBIO) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as nLIGHT, Inc. (NASDAQ:LASR), Century Aluminum Co (NASDAQ:CENX), and Harmonic Inc (NASDAQ:HLIT) to gather more data points. Our calculations also showed that TBIO 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.
Seth Klarman of Baupost Group
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the latest hedge fund action surrounding Translate Bio, Inc. (NASDAQ:TBIO).
How are hedge funds trading Translate Bio, Inc. (NASDAQ:TBIO)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in TBIO a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Baupost Group was the largest shareholder of Translate Bio, Inc. (NASDAQ:TBIO), with a stake worth $172.2 million reported as of the end of September. Trailing Baupost Group was Frazier Healthcare Partners, which amassed a stake valued at $21.6 million. Camber Capital Management, Rock Springs Capital Management, and Perceptive Advisors were 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 Frazier Healthcare Partners allocated the biggest weight to Translate Bio, Inc. (NASDAQ:TBIO), around 6.76% of its 13F portfolio. Baupost Group is also relatively very bullish on the stock, setting aside 1.95 percent of its 13F equity portfolio to TBIO.
Since Translate Bio, Inc. (NASDAQ:TBIO) has faced bearish sentiment from the smart money, we can see that there were a few hedge funds that slashed their positions entirely heading into Q4. At the top of the heap, Vishal Saluja and Pham Quang’s Endurant Capital Management sold off the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising close to $0.5 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $0.4 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Translate Bio, Inc. (NASDAQ:TBIO) but similarly valued. These stocks are nLIGHT, Inc. (NASDAQ:LASR), Century Aluminum Co (NASDAQ:CENX), Harmonic Inc (NASDAQ:HLIT), and Johnson Outdoors Inc. (NASDAQ:JOUT). This group of stocks’ market values are closest to TBIO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LASR | 6 | 41084 | 1 |
| CENX | 12 | 27232 | -2 |
| HLIT | 19 | 80499 | 5 |
| JOUT | 12 | 61479 | 2 |
| Average | 12.25 | 52574 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $229 million in TBIO’s case. Harmonic Inc (NASDAQ:HLIT) is the most popular stock in this table. On the other hand nLIGHT, Inc. (NASDAQ:LASR) is the least popular one with only 6 bullish hedge fund positions. Translate Bio, Inc. (NASDAQ:TBIO) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TBIO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TBIO investors were disappointed as the stock returned 1.4% during the first two months of the fourth quarter 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.
