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Here is What Hedge Funds Think About Monroe Capital Corp (MRCC)

In this article we will take a look at whether hedge funds think Monroe Capital Corp (NASDAQ:MRCC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Monroe Capital Corp (NASDAQ:MRCC) has experienced a decrease in support from the world’s most elite money managers recently. Our calculations also showed that MRCC 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.

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 S&P 500 ETFs by more than 51 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. Now we’re going to analyze the key hedge fund action regarding Monroe Capital Corp (NASDAQ:MRCC).

Hedge fund activity in Monroe Capital Corp (NASDAQ:MRCC)

Heading into the second quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MRCC over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, John Overdeck and David Siegel’s Two Sigma Advisors has the number one position in Monroe Capital Corp (NASDAQ:MRCC), worth close to $1.1 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is McKinley Capital Management, managed by Robert B. Gillam, which holds a $0.7 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism consist of D. E. Shaw’s D E Shaw, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to Monroe Capital Corp (NASDAQ:MRCC), around 0.06% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, earmarking 0.0043 percent of its 13F equity portfolio to MRCC.

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 MRCC 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 Monroe Capital Corp (NASDAQ:MRCC) but similarly valued. These stocks are Timkensteel Corp (NYSE:TMST), StarTek, Inc. (NYSE:SRT), SWK Holdings Corporation (NASDAQ:SWKH), and IDT Corporation (NYSE:IDT). This group of stocks’ market caps are similar to MRCC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TMST 11 8154 -1
SRT 4 3292 0
SWKH 4 116218 4
IDT 10 18102 1
Average 7.25 36442 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $2 million in MRCC’s case. Timkensteel Corp (NYSE:TMST) is the most popular stock in this table. On the other hand StarTek, Inc. (NYSE:SRT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Monroe Capital Corp (NASDAQ:MRCC) is even less popular than SRT. Hedge funds dodged a bullet by taking a bearish stance towards MRCC. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 13.2 percentage points. Unfortunately MRCC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); MRCC investors were disappointed as the stock returned 9.4% during the second quarter (through the end of May) 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 so far in 2020.

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