Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Main Street Capital Corporation (NYSE:MAIN).
Main Street Capital Corporation (NYSE:MAIN) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare MAIN to other stocks including SITE Centers Corp. (NYSE:SITC), Delek US Holdings, Inc. (NYSE:DK), and Taylor Morrison Home Corp (NYSE:TMHC) 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 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 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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s check out the key hedge fund action surrounding Main Street Capital Corporation (NYSE:MAIN).
How have hedgies been trading Main Street Capital Corporation (NYSE:MAIN)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MAIN over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, McKinley Capital Management, managed by Robert B. Gillam, holds the biggest position in Main Street Capital Corporation (NYSE:MAIN). McKinley Capital Management has a $5.9 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $5.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions contain David E. Shaw’s D E Shaw, Matthew Hulsizer’s PEAK6 Capital Management and . In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to Main Street Capital Corporation (NYSE:MAIN), around 0.44% of its 13F portfolio. Citadel Investment Group is also relatively very bullish on the stock, dishing out 0.0025 percent of its 13F equity portfolio to MAIN.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Driehaus Capital. 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 PEAK6 Capital Management).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Main Street Capital Corporation (NYSE:MAIN) but similarly valued. We will take a look at SITE Centers Corp. (NYSE:SITC), Delek US Holdings, Inc. (NYSE:DK), Taylor Morrison Home Corp (NYSE:TMHC), and Transocean Ltd (NYSE:RIG). This group of stocks’ market caps match MAIN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SITC | 11 | 54558 | -4 |
| DK | 21 | 87212 | 3 |
| TMHC | 24 | 375208 | 5 |
| RIG | 36 | 256394 | 5 |
| Average | 23 | 193343 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $13 million in MAIN’s case. Transocean Ltd (NYSE:RIG) is the most popular stock in this table. On the other hand SITE Centers Corp. (NYSE:SITC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Main Street Capital Corporation (NYSE:MAIN) is even less popular than SITC. Hedge funds dodged a bullet by taking a bearish stance towards MAIN. 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 MAIN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MAIN investors were disappointed as the stock returned 0.7% 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.
