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Hedge Funds Are Dumping Capital Southwest Corporation (CSWC)

In this article we will check out the progression of hedge fund sentiment towards Capital Southwest Corporation (NASDAQ:CSWC) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Capital Southwest Corporation (NASDAQ:CSWC) has experienced a decrease in hedge fund sentiment recently. CSWC was in 7 hedge funds’ portfolios at the end of the first quarter of 2020. There were 13 hedge funds in our database with CSWC positions at the end of the previous quarter. Our calculations also showed that CSWC 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In the eyes of most investors, hedge funds are seen as worthless, outdated investment vehicles of the past. While there are over 8000 funds with their doors open today, Our experts look at the aristocrats of this club, about 850 funds. These investment experts preside over most of the hedge fund industry’s total asset base, and by keeping an eye on their matchless stock picks, Insider Monkey has uncovered many investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the fresh hedge fund action encompassing Capital Southwest Corporation (NASDAQ:CSWC).

What have hedge funds been doing with Capital Southwest Corporation (NASDAQ:CSWC)?

At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -46% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CSWC over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Millennium Management was the largest shareholder of Capital Southwest Corporation (NASDAQ:CSWC), with a stake worth $3.3 million reported as of the end of September. Trailing Millennium Management was Ariel Investments, which amassed a stake valued at $1.7 million. Moerus Capital Management, Two Sigma Advisors, and Arrowstreet Capital 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 Moerus Capital Management allocated the biggest weight to Capital Southwest Corporation (NASDAQ:CSWC), around 0.78% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to CSWC.

Judging by the fact that Capital Southwest Corporation (NASDAQ:CSWC) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers who sold off their positions entirely in the first quarter. Intriguingly, Michael M. Rothenberg’s Moab Capital Partners dumped the biggest position of all the hedgies tracked by Insider Monkey, totaling about $5.3 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $3.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 6 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Capital Southwest Corporation (NASDAQ:CSWC). These stocks are Gritstone Oncology, Inc. (NASDAQ:GRTS), AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG), Maui Land & Pineapple Company, Inc. (NYSE:MLP), and HOOKIPA Pharma Inc. (NASDAQ:HOOK). This group of stocks’ market valuations are closest to CSWC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GRTS 7 44260 1
AMAG 12 92458 0
MLP 1 1704 -1
HOOK 6 34967 -1
Average 6.5 43347 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $10 million in CSWC’s case. AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) is the most popular stock in this table. On the other hand Maui Land & Pineapple Company, Inc. (NYSE:MLP) is the least popular one with only 1 bullish hedge fund positions. Capital Southwest Corporation (NASDAQ:CSWC) is not the most popular stock in this group but hedge fund interest is still above 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on CSWC as the stock returned 32.9% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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