Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Fidus Investment Corporation (NASDAQ:FDUS).
Is Fidus Investment Corporation (NASDAQ:FDUS) a safe investment right now? Prominent investors are in a pessimistic mood. The number of long hedge fund bets went down by 1 in recent months. Our calculations also showed that FDUS 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.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s review the latest hedge fund action regarding Fidus Investment Corporation (NASDAQ:FDUS).
What have hedge funds been doing with Fidus Investment Corporation (NASDAQ:FDUS)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in FDUS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the number one position in Fidus Investment Corporation (NASDAQ:FDUS), worth close to $7.1 million, amounting to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $1.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism consist of Robert B. Gillam’s McKinley Capital Management, Michael Gelband’s ExodusPoint Capital and . In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to Fidus Investment Corporation (NASDAQ:FDUS), around 0.06% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to FDUS.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified FDUS as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks similar to Fidus Investment Corporation (NASDAQ:FDUS). We will take a look at Orchid Island Capital, Inc. (NYSE:ORC), ImmunoGen, Inc. (NASDAQ:IMGN), Westport Fuel Systems Inc. (NASDAQ:WPRT), and Exantas Capital Corp. (NYSE:XAN). This group of stocks’ market caps are closest to FDUS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORC | 4 | 13940 | 0 |
| IMGN | 11 | 71455 | -4 |
| WPRT | 13 | 38865 | 0 |
| XAN | 15 | 67814 | -1 |
| Average | 10.75 | 48019 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $10 million in FDUS’s case. Exantas Capital Corp. (NYSE:XAN) is the most popular stock in this table. On the other hand Orchid Island Capital, Inc. (NYSE:ORC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Fidus Investment Corporation (NASDAQ:FDUS) is even less popular than ORC. 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 FDUS, though not to the same extent, as the stock returned 7.8% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
