“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Golub Capital BDC Inc (NASDAQ:GBDC) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Golub Capital BDC Inc (NASDAQ:GBDC) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. GBDC was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with GBDC positions at the end of the previous quarter. Our calculations also showed that GBDC 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.
Chuck Royce of Royce & Associates
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. We’re going to analyze the key hedge fund action encompassing Golub Capital BDC Inc (NASDAQ:GBDC).
How have hedgies been trading Golub Capital BDC Inc (NASDAQ:GBDC)?
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GBDC over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Golub Capital BDC Inc (NASDAQ:GBDC) was held by Clough Capital Partners, which reported holding $20.9 million worth of stock at the end of September. It was followed by D E Shaw with a $7.7 million position. Other investors bullish on the company included Citadel Investment Group, McKinley Capital Management, and Royce & Associates. In terms of the portfolio weights assigned to each position Clough Capital Partners allocated the biggest weight to Golub Capital BDC Inc (NASDAQ:GBDC), around 1.73% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, dishing out 0.3 percent of its 13F equity portfolio to GBDC.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Royce & Associates, managed by Chuck Royce, created the most outsized position in Golub Capital BDC Inc (NASDAQ:GBDC). Royce & Associates had $3.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $1.4 million position during the quarter. The following funds were also among the new GBDC investors: Bruce Kovner’s Caxton Associates and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s now take a look at hedge fund activity in other stocks similar to Golub Capital BDC Inc (NASDAQ:GBDC). We will take a look at Triton International Limited (NYSE:TRTN), Taubman Centers, Inc. (NYSE:TCO), John Wiley & Sons Inc (NYSE:JW), and Summit Materials Inc (NYSE:SUM). All of these stocks’ market caps are closest to GBDC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRTN | 14 | 50512 | 0 |
| TCO | 21 | 136881 | -4 |
| JW | 18 | 103460 | 1 |
| SUM | 24 | 648854 | 2 |
| Average | 19.25 | 234927 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $47 million in GBDC’s case. Summit Materials Inc (NYSE:SUM) is the most popular stock in this table. On the other hand Triton International Limited (NYSE:TRTN) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Golub Capital BDC Inc (NASDAQ:GBDC) is even less popular than TRTN. Hedge funds dodged a bullet by taking a bearish stance towards GBDC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GBDC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GBDC investors were disappointed as the stock returned -2.5% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
