A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Prospect Capital Corporation (NASDAQ:PSEC).
Prospect Capital Corporation (NASDAQ:PSEC) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 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 Seritage Growth Properties (NYSE:SRG), Belden Inc. (NYSE:BDC), and Reata Pharmaceuticals, Inc. (NASDAQ:RETA) to gather more data points. Our calculations also showed that PSEC 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
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. Let’s take a glance at the recent hedge fund action surrounding Prospect Capital Corporation (NASDAQ:PSEC).
Hedge fund activity in Prospect Capital Corporation (NASDAQ:PSEC)
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in PSEC a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Prospect Capital Corporation (NASDAQ:PSEC), with a stake worth $26.4 million reported as of the end of September. Trailing Arrowstreet Capital was Scopia Capital, which amassed a stake valued at $7.2 million. McKinley Capital Management, GLG Partners, and Two Sigma 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 Scopia Capital allocated the biggest weight to Prospect Capital Corporation (NASDAQ:PSEC), around 0.42% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, dishing out 0.33 percent of its 13F equity portfolio to PSEC.
Seeing as Prospect Capital Corporation (NASDAQ:PSEC) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedgies who sold off their entire stakes in the third quarter. Interestingly, Renee Yao’s Neo Ivy Capital sold off the biggest stake of the “upper crust” of funds followed by Insider Monkey, valued at close to $1 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund cut about $0.8 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Prospect Capital Corporation (NASDAQ:PSEC) but similarly valued. These stocks are Seritage Growth Properties (NYSE:SRG), Belden Inc. (NYSE:BDC), Reata Pharmaceuticals, Inc. (NASDAQ:RETA), and Simmons First National Corporation (NASDAQ:SFNC). This group of stocks’ market caps are similar to PSEC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SRG | 13 | 432895 | -2 |
| BDC | 13 | 77112 | -2 |
| RETA | 20 | 212229 | 5 |
| SFNC | 10 | 31824 | -2 |
| Average | 14 | 188515 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $189 million. That figure was $43 million in PSEC’s case. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is the most popular stock in this table. On the other hand Simmons First National Corporation (NASDAQ:SFNC) is the least popular one with only 10 bullish hedge fund positions. Prospect Capital Corporation (NASDAQ:PSEC) 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 PSEC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PSEC investors were disappointed as the stock returned 0.8% 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.
