Hedge Funds Are Cashing Out Of PennantPark Investment Corp. (PNNT)

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of PennantPark Investment Corp. (NASDAQ:PNNT) based on that data.

Is PennantPark Investment Corp. (NASDAQ:PNNT) a buy here? Prominent investors are in a pessimistic mood. The number of long hedge fund bets shrunk by 3 recently. Our calculations also showed that PNNT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the key hedge fund action surrounding PennantPark Investment Corp. (NASDAQ:PNNT).

How are hedge funds trading PennantPark Investment Corp. (NASDAQ:PNNT)?

Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in PNNT a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in PennantPark Investment Corp. (NASDAQ:PNNT), which was worth $3.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $2.5 million worth of shares. Two Sigma Advisors, Ancora Advisors, and McKinley Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to PennantPark Investment Corp. (NASDAQ:PNNT), around 0.03% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to PNNT.

Since PennantPark Investment Corp. (NASDAQ:PNNT) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there were a few fund managers that decided to sell off their entire stakes heading into Q4. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $0.7 million in stock. Bruce Kovner’s fund, Caxton Associates LP, also cut its stock, about $0.5 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PennantPark Investment Corp. (NASDAQ:PNNT) but similarly valued. These stocks are Abeona Therapeutics Inc (NASDAQ:ABEO), Cooper-Standard Holdings Inc (NYSE:CPS), Lands’ End, Inc. (NASDAQ:LE), and NantHealth, Inc. (NASDAQ:NH). This group of stocks’ market caps match PNNT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ABEO 19 54889 -3
CPS 11 13018 -3
LE 8 27863 -2
NH 4 1315 0
Average 10.5 24271 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $9 million in PNNT’s case. Abeona Therapeutics Inc (NASDAQ:ABEO) is the most popular stock in this table. On the other hand NantHealth, Inc. (NASDAQ:NH) is the least popular one with only 4 bullish hedge fund positions. PennantPark Investment Corp. (NASDAQ:PNNT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on PNNT as the stock returned 38.8% during the second quarter and outperformed the market by an even larger margin.

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