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Hedge Funds Have Never Been This Bullish On Barings BDC, Inc. (BBDC)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Barings BDC, Inc. (NYSE:BBDC).

Barings BDC, Inc. (NYSE:BBDC) has seen an increase in enthusiasm from smart money lately. BBDC was in 12 hedge funds’ portfolios at the end of March. There were 10 hedge funds in our database with BBDC holdings at the end of the previous quarter. Our calculations also showed that bbdc isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

MILLENNIUM MANAGEMENT

Let’s analyze the recent hedge fund action regarding Barings BDC, Inc. (NYSE:BBDC).

How have hedgies been trading Barings BDC, Inc. (NYSE:BBDC)?

At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the fourth quarter of 2018. By comparison, 3 hedge funds held shares or bullish call options in BBDC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with BBDC Positions

More specifically, Clough Capital Partners was the largest shareholder of Barings BDC, Inc. (NYSE:BBDC), with a stake worth $4.6 million reported as of the end of March. Trailing Clough Capital Partners was Arrowstreet Capital, which amassed a stake valued at $3.2 million. McKinley Capital Management, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the largest position in Barings BDC, Inc. (NYSE:BBDC). Millennium Management had $1.6 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Matthew Hulsizer’s PEAK6 Capital Management.

Let’s go over hedge fund activity in other stocks similar to Barings BDC, Inc. (NYSE:BBDC). We will take a look at Forty Seven, Inc. (NASDAQ:FTSV), Exela Technologies, Inc. (NASDAQ:XELA), American Public Education, Inc. (NASDAQ:APEI), and International Seaways, Inc. (NYSE:INSW). All of these stocks’ market caps resemble BBDC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTSV 8 28475 2
XELA 10 85307 -3
APEI 15 76344 -1
INSW 11 160250 3
Average 11 87594 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $17 million in BBDC’s case. American Public Education, Inc. (NASDAQ:APEI) is the most popular stock in this table. On the other hand Forty Seven, Inc. (NASDAQ:FTSV) is the least popular one with only 8 bullish hedge fund positions. Barings BDC, Inc. (NYSE:BBDC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on BBDC, though not to the same extent, as the stock returned 4.4% during the same time frame and outperformed the market as well.

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

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