Is Fifth Street Finance Corp. (NASDAQ:FSC) worth your attention right now? The best stock pickers are turning less bullish. The number of bullish hedge fund bets stayed the same which is a slightly negative development in our experience
According to most market participants, hedge funds are perceived as slow, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation today, we at Insider Monkey look at the top tier of this club, close to 450 funds. Most estimates calculate that this group oversees the lion's share of all hedge funds' total capital, and by keeping an eye on their best investments, we have come up with a number of investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum 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 outclassed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).
Just as integral, bullish insider trading sentiment is another way to break down the investments you're interested in. Obviously, there are plenty of motivations for an upper level exec to get rid of shares of his or her company, but just one, very obvious reason why they would buy. Plenty of academic studies have demonstrated the valuable potential of this method if you understand what to do (learn more here).
With these "truths" under our belt, we're going to take a gander at the recent action encompassing Fifth Street Finance Corp. (NASDAQ:FSC).
In preparation for this quarter, a total of 8 of the hedge funds we track held long positions in this stock, a change of 0% from one quarter earlier. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their stakes significantly.
When looking at the hedgies we track, David Einhorn's Greenlight Capital had the most valuable position in Fifth Street Finance Corp. (NASDAQ:FSC), worth close to $22 million, accounting for 0.3% of its total 13F portfolio. On Greenlight Capital's heels is Citadel Investment Group, managed by Ken Griffin, which held a $20.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers with similar optimism include Israel Englander's Millennium Management, John Overdeck and David Siegel's Two Sigma Advisors and D. E. Shaw's D E Shaw.
Since Fifth Street Finance Corp. (NASDAQ:FSC) has faced declining sentiment from hedge fund managers, logic holds that there were a few money managers that elected to cut their entire stakes at the end of the first quarter. Interestingly, Whitney Tilson's T2 Partners cut the biggest position of all the hedgies we monitor, totaling about $1.4 million in stock.. Matthew Hulsizer's fund, PEAK6 Capital Management, also said goodbye to its call options., about $0 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Bullish insider trading is at its handiest when the company in focus has experienced transactions within the past half-year. Over the last half-year time frame, Fifth Street Finance Corp. (NASDAQ:FSC) has seen 5 unique insiders buying, and zero insider sales (see the details of insider trades here).
Let's also review hedge fund and insider activity 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). All of these stocks are in the credit services industry and their market caps match FSC's market cap.