Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first half of 2019. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Fidus Investment Corporation (NASDAQ:FDUS) to find out whether it was one of their high conviction long-term ideas.
Is Fidus Investment Corporation (NASDAQ:FDUS) a buy, sell, or hold? Prominent investors are turning less bullish. The number of bullish hedge fund bets decreased by 3 in recent months. Our calculations also showed that FDUS isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the fresh hedge fund action regarding Fidus Investment Corporation (NASDAQ:FDUS).
How are hedge funds trading Fidus Investment Corporation (NASDAQ:FDUS)?
Heading into the third quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -38% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in FDUS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Fidus Investment Corporation (NASDAQ:FDUS), with a stake worth $7.5 million reported as of the end of March. Trailing Arrowstreet Capital was Two Sigma Advisors, which amassed a stake valued at $1.6 million. McKinley Capital Management, Millennium Management, and ExodusPoint Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Because Fidus Investment Corporation (NASDAQ:FDUS) has experienced a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedge funds who sold off their positions entirely in the second quarter. Interestingly, Jose Fernandez’s Stepstone Group cut the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $3.3 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also cut its stock, about $1.1 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 3 funds in the second quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Fidus Investment Corporation (NASDAQ:FDUS) but similarly valued. These stocks are Vera Bradley, Inc. (NASDAQ:VRA), Brightcove Inc (NASDAQ:BCOV), Tekla World Healthcare Fund (NYSE:THW), and Quad/Graphics, Inc. (NYSE:QUAD). This group of stocks’ market valuations are similar to FDUS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRA | 16 | 54301 | -2 |
| BCOV | 18 | 142351 | 3 |
| THW | 1 | 510 | 0 |
| QUAD | 16 | 26719 | -6 |
| Average | 12.75 | 55970 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $11 million in FDUS’s case. Brightcove Inc (NASDAQ:BCOV) is the most popular stock in this table. On the other hand Tekla World Healthcare Fund (NYSE:THW) is the least popular one with only 1 bullish hedge fund positions. Fidus Investment Corporation (NASDAQ:FDUS) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FDUS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FDUS investors were disappointed as the stock returned -4.6% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.