Is New Mountain Finance Corp. (NMFC) A Good Stock To Buy?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 15 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 1% through March 15th whereas the S&P 500 Index ETF lost 2.2% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at New Mountain Finance Corp. (NYSE:NMFC) from the perspective of those elite funds.

New Mountain Finance Corp. (NYSE:NMFC) was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2018. NMFC has seen a decrease in activity from the world’s largest hedge funds lately. There were 12 hedge funds in our database with NMFC positions at the end of the previous quarter. Our calculations also showed that NMFC isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

BlueMountain Capital Management's Returns, AUM and Holdings

Let’s take a peek at the recent hedge fund action regarding New Mountain Finance Corp. (NYSE:NMFC).

What have hedge funds been doing with New Mountain Finance Corp. (NYSE:NMFC)?

At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NMFC 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.


Among these funds, Polar Capital held the most valuable stake in New Mountain Finance Corp. (NYSE:NMFC), which was worth $3.9 million at the end of the fourth quarter. On the second spot was McKinley Capital Management which amassed $3 million worth of shares. Moreover, Arrowstreet Capital, Millennium Management, and Blue Mountain Capital were also bullish on New Mountain Finance Corp. (NYSE:NMFC), allocating a large percentage of their portfolios to this stock.

Since New Mountain Finance Corp. (NYSE:NMFC) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that slashed their full holdings by the end of the third quarter. At the top of the heap, Benjamin A. Smith’s Laurion Capital Management said goodbye to the largest investment of the 700 funds followed by Insider Monkey, comprising an estimated $4 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also cut its stock, about $2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as New Mountain Finance Corp. (NYSE:NMFC) but similarly valued. We will take a look at Tronox Holdings plc (NYSE:TROX), Easterly Government Properties Inc (NYSE:DEA), Goosehead Insurance, Inc. (NASDAQ:GSHD), and Harmony Gold Mining Company Limited (NYSE:HMY). This group of stocks’ market caps are similar to NMFC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TROX 26 144390 -4
DEA 5 121754 -3
GSHD 3 8605 -1
HMY 7 19643 0
Average 10.25 73598 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $15 million in NMFC’s case. Tronox Holdings plc (NYSE:TROX) is the most popular stock in this table. On the other hand Goosehead Insurance, Inc. (NASDAQ:GSHD) is the least popular one with only 3 bullish hedge fund positions. New Mountain Finance Corp. (NYSE:NMFC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 NMFC wasn’t nearly as popular as these 15 stock and hedge funds that were betting on NMFC were disappointed as the stock returned 12% 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.