We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Gladstone Capital Corporation (NASDAQ:GLAD).
Gladstone Capital Corporation (NASDAQ:GLAD) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds’ portfolios at the end of June. At the end of this article we will also compare GLAD to other stocks including Pacific City Financial Corporation (NASDAQ:PCB), Permian Basin Royalty Trust (NYSE:PBT), and Entravision Communication Corporation (NYSE:EVC) to get a better sense of its popularity.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. We’re going to view the key hedge fund action regarding Gladstone Capital Corporation (NASDAQ:GLAD).
What does smart money think about Gladstone Capital Corporation (NASDAQ:GLAD)?
At Q2’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GLAD over the last 16 quarters. So, let’s examine 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 Gladstone Capital Corporation (NASDAQ:GLAD), with a stake worth $2.3 million reported as of the end of March. Trailing Arrowstreet Capital was McKinley Capital Management, which amassed a stake valued at $1.4 million. Two Sigma Advisors, Marshall Wace LLP, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace LLP).
Let’s check out hedge fund activity in other stocks similar to Gladstone Capital Corporation (NASDAQ:GLAD). We will take a look at Pacific City Financial Corporation (NASDAQ:PCB), Permian Basin Royalty Trust (NYSE:PBT), Entravision Communication Corporation (NYSE:EVC), and Seneca Foods Corp (NASDAQ:SENEA). This group of stocks’ market values are closest to GLAD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PCB | 2 | 26436 | 0 |
| PBT | 6 | 10023 | 0 |
| EVC | 15 | 20611 | 4 |
| SENEA | 3 | 13233 | 0 |
| Average | 6.5 | 17576 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $5 million in GLAD’s case. Entravision Communication Corporation (NYSE:EVC) is the most popular stock in this table. On the other hand Pacific City Financial Corporation (NASDAQ:PCB) is the least popular one with only 2 bullish hedge fund positions. Gladstone Capital Corporation (NASDAQ:GLAD) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on GLAD as the stock returned 6.3% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
