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Hedge Funds Aren’t Souring On Saratoga Investment Corp (SAR)?

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 first quarter. You can find articles 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 over the last 4.5 years and analyze what the smart money thinks of Saratoga Investment Corp (NYSE:SAR) based on that data.

Saratoga Investment Corp (NYSE:SAR) shareholders have witnessed a decrease in hedge fund sentiment recently. Our calculations also showed that SAR 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 today’s marketplace there are a large number of methods shareholders have at their disposal to assess their stock investments. A couple of the most useful methods are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the best investment managers can outclass the market by a superb margin (see the details here).

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

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 we’re going to view the latest hedge fund action encompassing Saratoga Investment Corp (NYSE:SAR).

What does smart money think about Saratoga Investment Corp (NYSE:SAR)?

At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the fourth quarter of 2019. On the other hand, there were a total of 2 hedge funds with a bullish position in SAR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Marshall Wace LLP held the most valuable stake in Saratoga Investment Corp (NYSE:SAR), which was worth $0.9 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $0.6 million worth of shares. D E Shaw, McKinley Capital Management, and Citadel Investment Group 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 Saratoga Investment Corp (NYSE:SAR), around 0.03% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to SAR.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SAR as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Saratoga Investment Corp (NYSE:SAR) but similarly valued. We will take a look at Hamilton Beach Brands Holding Company (NYSE:HBB), Republic First Bancorp, Inc. (NASDAQ:FRBK), VolitionRX Limited (NYSE:VNRX), and Graham Corporation (NYSE:GHM). This group of stocks’ market caps resemble SAR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HBB 7 1843 1
FRBK 7 3468 1
VNRX 1 454 -1
GHM 5 12739 -5
Average 5 4626 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $2 million in SAR’s case. Hamilton Beach Brands Holding Company (NYSE:HBB) is the most popular stock in this table. On the other hand VolitionRX Limited (NYSE:VNRX) is the least popular one with only 1 bullish hedge fund positions. Saratoga Investment Corp (NYSE:SAR) 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on SAR as the stock returned 31.9% 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.