There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Hercules Capital, Inc. (NYSE:HTGC).
Hercules Capital, Inc. (NYSE:HTGC) was in 10 hedge funds’ portfolios at the end of the first quarter of 2019. HTGC shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. There were 11 hedge funds in our database with HTGC positions at the end of the previous quarter. Our calculations also showed that HTGC isn’t among the 30 most popular stocks among hedge funds.
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.
We’re going to take a peek at the latest hedge fund action encompassing Hercules Capital, Inc. (NYSE:HTGC).
How are hedge funds trading Hercules Capital, Inc. (NYSE:HTGC)?
Heading into the second quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HTGC over the last 15 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, McKinley Capital Management, managed by Robert B. Gillam, holds the largest position in Hercules Capital, Inc. (NYSE:HTGC). McKinley Capital Management has a $4.3 million position in the stock, comprising 0.3% of its 13F portfolio. On McKinley Capital Management’s heels is Bernard Horn of Polaris Capital Management, with a $2.6 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions comprise D. E. Shaw’s D E Shaw, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management.
Due to the fact that Hercules Capital, Inc. (NYSE:HTGC) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies that elected to cut their full holdings by the end of the third quarter. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors cut the biggest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $1.8 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund said goodbye to about $1.8 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Hercules Capital, Inc. (NYSE:HTGC). These stocks are CorVel Corporation (NASDAQ:CRVL), PRA Group, Inc. (NASDAQ:PRAA), Adient plc (NYSE:ADNT), and Sykes Enterprises, Incorporated (NASDAQ:SYKE). This group of stocks’ market caps resemble HTGC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRVL | 16 | 120959 | 1 |
| PRAA | 11 | 34936 | 1 |
| ADNT | 23 | 275036 | -4 |
| SYKE | 17 | 50966 | 1 |
| Average | 16.75 | 120474 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $10 million in HTGC’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand PRA Group, Inc. (NASDAQ:PRAA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Hercules Capital, Inc. (NYSE:HTGC) is even less popular than PRAA. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on HTGC, though not to the same extent, as the stock returned 3.8% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
