The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Solar Capital Ltd. (NASDAQ:SLRC) from the perspective of those successful funds.
Hedge fund interest in Solar Capital Ltd. (NASDAQ:SLRC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Apollo Group Inc (NASDAQ:APOL), PharMerica Corporation (NYSE:PMC), and Berkshire Hills Bancorp, Inc. (NYSE:BHLB) to gather more data points.
Follow Slr Investment Corp. (NASDAQ:SLRC)
Follow Slr Investment Corp. (NASDAQ:SLRC)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Keeping this in mind, we’re going to take a gander at the latest action encompassing Solar Capital Ltd. (NASDAQ:SLRC).
Hedge fund activity in Solar Capital Ltd. (NASDAQ:SLRC)
At the end of the third quarter, a total of 11 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 SLRC over the last 5 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Charles Clough’s Clough Capital Partners has the biggest position in Solar Capital Ltd. (NASDAQ:SLRC), worth close to $15.5 million, comprising 0.8% of its total 13F portfolio. The second most bullish fund manager is Polar Capital, led by Brian Ashford-Russell and Tim Woolley, which holds a $8.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish contain Robert B. Gillam’s McKinley Capital Management, Millennium Management, one of the 10 largest hedge funds in the world, and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Raiff Partners. 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 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Springbok Capital).
Let’s now review hedge fund activity in other stocks similar to Solar Capital Ltd. (NASDAQ:SLRC). These stocks are Apollo Group Inc (NASDAQ:APOL), PharMerica Corporation (NYSE:PMC), Berkshire Hills Bancorp, Inc. (NYSE:BHLB), and First Busey Corporation (NASDAQ:BUSE). This group of stocks’ market caps are similar to SLRC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APOL | 17 | 128024 | 1 |
| PMC | 14 | 65037 | -2 |
| BHLB | 11 | 35869 | 2 |
| BUSE | 11 | 22185 | 2 |
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $42 million in SLRC’s case. Apollo Group Inc (NASDAQ:APOL) is the most popular stock in this table. On the other hand Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Solar Capital Ltd. (NASDAQ:SLRC) is even less popular than BHLB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None
