Hedge Funds Aren’t Crazy About American Capital Ltd. (ACAS) Anymore

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: American Capital Ltd. (NASDAQ:ACAS).

Is American Capital Ltd. (NASDAQ:ACAS) a safe investment now? The best stock pickers are getting less bullish. The number of long hedge fund bets retreated by 6 lately. 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 Regal Entertainment Group (NYSE:RGC), Sprouts Farmers Market Inc (NASDAQ:SFM), and Rice Energy Inc (NYSE:RICE) to gather more data points.

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.

Hedge fund activity in American Capital Ltd. (NASDAQ:ACAS)

At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 18% from one quarter earlier, after relatively flat sentiment for two quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Paul Singer’s Elliott Management has the most valuable position in American Capital Ltd. (NASDAQ:ACAS), worth close to $211 million, amounting to 1.7% of its total 13F portfolio. The second most bullish fund manager is Alpine Associates, led by Robert Emil Zoellner, holding a $77.6 million position; the fund has 2.8% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of John Paulson’s Paulson & Co, Alec Litowitz and Ross Laser’s Magnetar Capital and Anthony Bozza’s Lakewood Capital Management.

Due to the fact that American Capital Ltd. (NASDAQ:ACAS) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedge funds that slashed their entire stakes by the end of the third quarter. It’s worth mentioning that Brian Taylor’s Pine River Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $97.4 million in stock, and Jeremy Carton and Gilbert Li’s Alta Fundamental Advisers was right behind this move, as the fund sold off about $5.8 million worth of shares. These moves are interesting, as total hedge fund interest was cut by 6 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as American Capital Ltd. (NASDAQ:ACAS) but similarly valued. These stocks are Regal Entertainment Group (NYSE:RGC), Sprouts Farmers Market Inc (NASDAQ:SFM), Rice Energy Inc (NYSE:RICE), and NCR Corporation (NYSE:NCR). This group of stocks’ market caps resemble ACAS’s market cap.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $440 million. That figure was $600 million in ACAS’ case. Rice Energy Inc (NYSE:RICE) is the most popular stock in this table. On the other hand Regal Entertainment Group (NYSE:RGC) is the least popular one with only 19 bullish hedge fund positions. American Capital Ltd. (NASDAQ:ACAS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RICE might be a better candidate to consider a long position.

Disclosure: None