Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Barings BDC, Inc. (NYSE:BBDC) to find out whether it was one of their high conviction long-term ideas.
Barings BDC, Inc. (NYSE:BBDC) has experienced an increase in support from the world’s most elite money managers lately. BBDC was in 10 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 9 hedge funds in our database with BBDC positions at the end of the previous quarter. Our calculations also showed that BBDC isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 32 percentage points since May 2014 through March 12, 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.
We’re going to take a look at the recent hedge fund action regarding Barings BDC, Inc. (NYSE:BBDC).
How have hedgies been trading Barings BDC, Inc. (NYSE:BBDC)?
At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BBDC over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Barings BDC, Inc. (NYSE:BBDC) was held by Clough Capital Partners, which reported holding $4.4 million worth of stock at the end of December. It was followed by McKinley Capital Management with a $2.2 million position. Other investors bullish on the company included Citadel Investment Group, Moab Capital Partners, and Two Sigma Advisors.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the biggest position in Barings BDC, Inc. (NYSE:BBDC). Two Sigma Advisors had $0.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.2 million investment in the stock during the quarter. The following funds were also among the new BBDC investors: D. E. Shaw’s D E Shaw and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Barings BDC, Inc. (NYSE:BBDC) but similarly valued. We will take a look at A10 Networks Inc (NYSE:ATEN), NuCana plc (NASDAQ:NCNA), Senseonics Holdings, Inc. (NYSE:SENS), and Lands’ End, Inc. (NASDAQ:LE). This group of stocks’ market values match BBDC’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $12 million in BBDC’s case. A10 Networks Inc (NYSE:ATEN) is the most popular stock in this table. On the other hand NuCana plc (NASDAQ:NCNA) is the least popular one with only 2 bullish hedge fund positions. Barings BDC, Inc. (NYSE:BBDC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately BBDC wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); BBDC investors were disappointed as the stock returned 11.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.