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Do Hedge Funds Love Gladstone Investment Corporation (GAIN)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find write-ups about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of Gladstone Investment Corporation (NASDAQ:GAIN) based on that data.

Gladstone Investment Corporation (NASDAQ:GAIN) has experienced a decrease in activity from the world’s largest hedge funds lately. GAIN was in 4 hedge funds’ portfolios at the end of June. There were 7 hedge funds in our database with GAIN holdings at the end of the previous quarter. Our calculations also showed that GAIN isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. We’re going to take a glance at the key hedge fund action encompassing Gladstone Investment Corporation (NASDAQ:GAIN).

Hedge fund activity in Gladstone Investment Corporation (NASDAQ:GAIN)

At Q2’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GAIN over the last 16 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

No of Hedge Funds with GAIN Positions

According to Insider Monkey’s hedge fund database, John Overdeck and David Siegel’s Two Sigma Advisors has the biggest position in Gladstone Investment Corporation (NASDAQ:GAIN), worth close to $0.9 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $0.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions encompass Ken Griffin’s Citadel Investment Group, D. E. Shaw’s D E Shaw and Israel Englander’s Millennium Management.

Because Gladstone Investment Corporation (NASDAQ:GAIN) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds who were dropping their entire stakes heading into Q3. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $0.8 million in stock. Eric Sprott’s fund, Sprott Asset Management, also dropped its stock, about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Gladstone Investment Corporation (NASDAQ:GAIN) but similarly valued. We will take a look at Allied Motion Technologies, Inc. (NASDAQ:AMOT), Acorda Therapeutics Inc (NASDAQ:ACOR), Calyxt, Inc. (NASDAQ:CLXT), and Assembly Biosciences Inc (NASDAQ:ASMB). All of these stocks’ market caps resemble GAIN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMOT 12 27502 0
ACOR 16 108015 -6
CLXT 3 5882 0
ASMB 18 82204 -1
Average 12.25 55901 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $2 million in GAIN’s case. Assembly Biosciences Inc (NASDAQ:ASMB) is the most popular stock in this table. On the other hand Calyxt, Inc. (NASDAQ:CLXT) is the least popular one with only 3 bullish hedge fund positions. Gladstone Investment Corporation (NASDAQ:GAIN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on GAIN as the stock returned 12.1% during the same time frame and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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