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Is Horizon Technology Finance Corp (HRZN) Going to Burn These Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Horizon Technology Finance Corp (NASDAQ:HRZN).

Is Horizon Technology Finance Corp (NASDAQ:HRZN) a superb stock to buy now? The smart money is taking a bearish view. The number of bullish hedge fund bets shrunk by 1 lately. Our calculations also showed that HRZN 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 the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

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. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. 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 view the latest hedge fund action regarding Horizon Technology Finance Corp (NASDAQ:HRZN).

Hedge fund activity in Horizon Technology Finance Corp (NASDAQ:HRZN)

Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HRZN over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is HRZN A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, John Overdeck and David Siegel’s Two Sigma Advisors has the biggest position in Horizon Technology Finance Corp (NASDAQ:HRZN), worth close to $1.6 million, corresponding to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Ken Griffin of Citadel Investment Group, with a $1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Two Sigma Advisors allocated the biggest weight to Horizon Technology Finance Corp (NASDAQ:HRZN), around 0.01% of its 13F portfolio. D E Shaw is also relatively very bullish on the stock, dishing out 0.0006 percent of its 13F equity portfolio to HRZN.

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 HRZN as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Horizon Technology Finance Corp (NASDAQ:HRZN) but similarly valued. These stocks are First Guaranty Bancshares, Inc. (NASDAQ:FGBI), Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA), Tyme Technologies, Inc. (NASDAQ:TYME), and Lumber Liquidators Holdings Inc (NYSE:LL). This group of stocks’ market values resemble HRZN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FGBI 1 557 0
LTRPA 21 37842 -2
TYME 4 2659 1
LL 11 13695 -2
Average 9.25 13688 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $3 million in HRZN’s case. Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) is the most popular stock in this table. On the other hand First Guaranty Bancshares, Inc. (NASDAQ:FGBI) is the least popular one with only 1 bullish hedge fund positions. Horizon Technology Finance Corp (NASDAQ:HRZN) 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 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. A small number of hedge funds were also right about betting on HRZN as the stock returned 31.7% during the second quarter and outperformed the market by an even larger margin.

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