Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Saratoga Investment Corp (NYSE:SAR).
Saratoga Investment Corp (NYSE:SAR) was in 5 hedge funds’ portfolios at the end of September. SAR investors should be aware of an increase in activity from the world’s largest hedge funds recently. There were 2 hedge funds in our database with SAR holdings at the end of the previous quarter. Our calculations also showed that SAR 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.
To the average investor there are a large number of metrics investors use to value publicly traded companies. Some of the less known metrics are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the market by a superb amount (see the details here).
Israel Englander of Millennium Management
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. With all of this in mind we’re going to take a glance at the fresh hedge fund action regarding Saratoga Investment Corp (NYSE:SAR).
What have hedge funds been doing with Saratoga Investment Corp (NYSE:SAR)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 150% from one quarter earlier. On the other hand, there were a total of 2 hedge funds with a bullish position in SAR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in Saratoga Investment Corp (NYSE:SAR), which was worth $2.7 million at the end of the third quarter. On the second spot was Marshall Wace which amassed $1.8 million worth of shares. Two Sigma Advisors, Citadel Investment Group, and McKinley Capital Management 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 McKinley Capital Management allocated the biggest weight to Saratoga Investment Corp (NYSE:SAR), around 0.06% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to SAR.
As industrywide interest jumped, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the most outsized position in Saratoga Investment Corp (NYSE:SAR). Millennium Management had $2.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also initiated a $1.8 million position during the quarter. The only other fund with a new position in the stock is Ken Griffin’s Citadel Investment Group.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Saratoga Investment Corp (NYSE:SAR) but similarly valued. These stocks are Castle Brands Inc (NYSE:ROX), Civeo Corporation (Canada) (NYSE:CVEO), Clovis Oncology Inc (NASDAQ:CLVS), and Gold Standard Ventures Corp (NYSE:GSV). This group of stocks’ market caps are closest to SAR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ROX | 9 | 8244 | 5 |
| CVEO | 13 | 84856 | 0 |
| CLVS | 20 | 64849 | -4 |
| GSV | 2 | 177 | 0 |
| Average | 11 | 39532 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $7 million in SAR’s case. Clovis Oncology Inc (NASDAQ:CLVS) is the most popular stock in this table. On the other hand Gold Standard Ventures Corp (NYSE:GSV) is the least popular one with only 2 bullish hedge fund positions. Saratoga Investment Corp (NYSE:SAR) 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 SAR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SAR investors were disappointed as the stock returned 1.5% 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.
