Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Tuscan Holdings Corp. (NASDAQ:THCB)? The smart money sentiment can provide an answer to this question.
Is THCB a good stock to buy now? Tuscan Holdings Corp. (NASDAQ:THCB) was in 12 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. THCB has seen an increase in hedge fund sentiment in recent months. There were 10 hedge funds in our database with THCB positions at the end of the second quarter. Our calculations also showed that THCB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
Jeffrey Tannenbaum of Fir Tree
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to take a look at the key hedge fund action encompassing Tuscan Holdings Corp. (NASDAQ:THCB).
Do Hedge Funds Think THCB Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in THCB a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Hudson Bay Capital Management was the largest shareholder of Tuscan Holdings Corp. (NASDAQ:THCB), with a stake worth $24.9 million reported as of the end of September. Trailing Hudson Bay Capital Management was Millennium Management, which amassed a stake valued at $8.3 million. BlueCrest Capital Mgmt., Weiss Asset Management, and Fir Tree 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 Athos Capital allocated the biggest weight to Tuscan Holdings Corp. (NASDAQ:THCB), around 0.97% of its 13F portfolio. Hudson Bay Capital Management is also relatively very bullish on the stock, setting aside 0.37 percent of its 13F equity portfolio to THCB.
Consequently, key hedge funds have been driving this bullishness. Omni Partners, managed by Steven Clark, initiated the most outsized position in Tuscan Holdings Corp. (NASDAQ:THCB). Omni Partners had $4.1 million invested in the company at the end of the quarter. Matthew Moskey and Friedrich Schulte-Hillen's Athos Capital also made a $2 million investment in the stock during the quarter.
Let's go over hedge fund activity in other stocks similar to Tuscan Holdings Corp. (NASDAQ:THCB). These stocks are Benefitfocus Inc (NASDAQ:BNFT), Alexco Resource Corp. (NYSE:AXU), AdvanSix Inc. (NYSE:ASIX), Urstadt Biddle Properties Inc (NYSE:UBA), Sutro Biopharma, Inc. (NASDAQ:STRO), Insteel Industries Inc (NASDAQ:IIIN), and Akebia Therapeutics Inc (NASDAQ:AKBA). All of these stocks' market caps are similar to THCB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BNFT,18,54294,5 AXU,2,671,-3 ASIX,14,42435,-2 UBA,18,28677,3 STRO,23,172590,3 IIIN,9,22380,1 AKBA,18,59298,-7 Average,14.6,54335,0 [/table]
As you can see these stocks had an average of 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $71 million in THCB's case. Sutro Biopharma, Inc. (NASDAQ:STRO) is the most popular stock in this table. On the other hand Alexco Resource Corp. (NYSE:AXU) is the least popular one with only 2 bullish hedge fund positions. Tuscan Holdings Corp. (NASDAQ:THCB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for THCB is 60.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on THCB as the stock returned 25.5% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
