10 Best Asset Management Stocks to Buy According to Short Sellers

8. MidCap Financial Investment Corporation (NASDAQ:MFIC)

Number of Hedge Fund Investors  in Q2 2024: 5

Short Interest % of Shares Outstanding: 0.41

MidCap Financial Investment Corporation (NASDAQ:MFIC) is a business development firm that sources funds from Apollo Capital backed MidCap Financial. This provides it with a stable source of funds and the firm’s primary line of business is corporate lending. This means that the risks for MidCap Financial Investment Corporation (NASDAQ:MFIC) increase in a high interest rate environment such as the one that we’re facing right now. The firm completed its merger with two Apollo funds in July, and after the deal was announced, MidCap Financial Investment Corporation (NASDAQ:MFIC)’s shares dropped by 9.7%. The firm operates in the middle loan market, which is dominated by relatively smaller players when compared to others such as syndicated loans – allowing MidCap Financial Investment Corporation (NASDAQ:MFIC) to compete in a market with a relatively lower presence of larger financial sector players.

MidCap Financial Investment Corporation (NASDAQ:MFIC)’s management shared how its managing the current environment during the Q2 2024 earnings call:

“We believe MFIC has one of the most senior corporate lending portfolios among BDCs as evidenced by our weighted average attachment point of essentially zero. We believe we have constructed a corporate lending portfolio that will perform well even during a potential economic downturn. Overall, we feel good about the health and quality of our corporate lending portfolio as our underlying borrowers have largely been able to handle higher borrowing costs. We have not seen any significant signs of credit weakness across the portfolio. We are, of course, closely monitoring our portfolio and mindful of the potential impacts of a higher for longer rate environment. I would now like to provide our perspective on the current environment. Despite high interest rates, elevated inflation and geopolitical uncertainty, U.S. economy has proven to be resilient and continues to display strong growth.

At the beginning of 2024, investors expected the Federal Reserve to cut rates multiple times during the year. However, as the quarter progressed, sovereign inflation has pushed out the expectation for the start of rate cuts and the market generally believes that we are in a higher for longer scenario. Apollo’s Chief Economist believes that there’s a reasonable chance that the Fed may not cut at all in 2024, while the market is currently pricing in only 1 cut this year. Specific to the lending market, during the first quarter, there has been an increase in activity in the syndicated loan market. MFIC is focused on the middle market, which is less susceptible to competition from the syndicated loan market. Although, spreads in our market have decreased, the decline has been less than what we have observed in liquid loan markets.”