In this article we will check out the progression of hedge fund sentiment towards Source Capital, Inc. (NYSE:SOR) 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.
Source Capital, Inc. (NYSE:SOR) shareholders have witnessed an increase in hedge fund sentiment lately. Our calculations also showed that SOR 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.
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 S&P 500 ETFs by 44 percentage points since March 2017 (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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s review the latest hedge fund action surrounding Source Capital, Inc. (NYSE:SOR).
Hedge fund activity in Source Capital, Inc. (NYSE:SOR)
At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SOR 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.
Of the funds tracked by Insider Monkey, Phillip Goldstein, Andrew Dakos and Steven Samuels’s Bulldog Investors has the number one position in Source Capital, Inc. (NYSE:SOR), worth close to $6.1 million, amounting to 3.2% of its total 13F portfolio. On Bulldog Investors’s heels is Saba Capital, managed by Boaz Weinstein, which holds a $5.5 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish encompass Charles Clough’s Clough Capital Partners, Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk’s GRT Capital Partners and . In terms of the portfolio weights assigned to each position Bulldog Investors allocated the biggest weight to Source Capital, Inc. (NYSE:SOR), around 3.21% of its 13F portfolio. GRT Capital Partners is also relatively very bullish on the stock, setting aside 0.66 percent of its 13F equity portfolio to SOR.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Saba Capital, managed by Boaz Weinstein, established the biggest position in Source Capital, Inc. (NYSE:SOR). Saba Capital had $5.5 million invested in the company at the end of the quarter. Charles Clough’s Clough Capital Partners also initiated a $0.5 million position during the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Source Capital, Inc. (NYSE:SOR) but similarly valued. These stocks are ACNB Corporation (NASDAQ:ACNB), Gladstone Investment Corporation (NASDAQ:GAIN), Ocular Therapeutix Inc (NASDAQ:OCUL), and National CineMedia, Inc. (NASDAQ:NCMI). This group of stocks’ market caps match SOR’s market cap.
|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 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $12 million in SOR’s case. National CineMedia, Inc. (NASDAQ:NCMI) is the most popular stock in this table. On the other hand ACNB Corporation (NASDAQ:ACNB) is the least popular one with only 2 bullish hedge fund positions. Source Capital, Inc. (NYSE:SOR) 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 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 surpassed the market by 13.2 percentage points. Unfortunately SOR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SOR investors were disappointed as the stock returned 7.5% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.