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Do Hedge Funds and Insiders Love Fifth Street Finance Corp. (FSC)?

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To many of your peers, hedge funds are seen as bloated, outdated investment vehicles of a forgotten age. Although there are over 8,000 hedge funds in operation currently, Insider Monkey focuses on the moguls of this group, close to 525 funds. It is widely held that this group controls the majority of the smart money’s total capital, and by monitoring their highest quality stock picks, we’ve identified a few investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 33 percentage points in 11 months (explore the details and some picks here).

Fifth Street Finance Corp. (NASDAQ:FSC)

Equally as key, optimistic insider trading sentiment is a second way to look at the financial markets. As the old adage goes: there are many motivations for an upper level exec to cut shares of his or her company, but just one, very simple reason why they would buy. Various academic studies have demonstrated the impressive potential of this method if “monkeys” know what to do (learn more here).

Now that that’s out of the way, let’s examine the recent info about Fifth Street Finance Corp. (NASDAQ:FSC).

How are hedge funds trading Fifth Street Finance Corp. (NASDAQ:FSC)?

In preparation for the third quarter, a total of 8 of the hedge funds we track held long positions in this stock, a change of 0% from the previous quarter. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably.

When using filings from the hedgies we track, Greenlight Capital, managed by David Einhorn, holds the most valuable position in Fifth Street Finance Corp. (NASDAQ:FSC). Greenlight Capital has a $20.9 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $18.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that hold long positions include Brian Taylor’s Pine River Capital Management, and Israel Englander’s Millennium Management.

Since Fifth Street Finance Corp. (NASDAQ:FSC) has faced dropping sentiment from the smart money’s best and brightest, we can see that there lies a certain “tier” of hedge funds that decided to sell off their positions entirely heading into Q2. Intriguingly, David Cohen and Harold Levy’s Iridian Asset Management sold off the largest investment of the 450+ funds we watch, valued at about $0.3 million in stock, and Matthew Hulsizer of PEAK6 Capital Management was right behind this move, as the fund dumped about $0.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with Fifth Street Finance Corp. (NASDAQ:FSC)?

Insider buying made by high-level executives is at its handiest when the company in question has experienced transactions within the past half-year. Over the latest six-month time period, Fifth Street Finance Corp. (NASDAQ:FSC) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll also review the relationship between both of these indicators in other stocks similar to Fifth Street Finance Corp. (NASDAQ:FSC). These stocks are Federal Agricultural Mortgage Corp. (NYSE:AGM), World Acceptance Corp. (NASDAQ:WRLD), Global Cash Access Holdings, Inc. (NYSE:GCA), DFC Global Corp (NASDAQ:DLLR), and NewStar Financial Inc (NASDAQ:NEWS). This group of stocks belong to the credit services industry and their market caps match FSC’s market cap.

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