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Is New Mountain Finance Corporation (NMFC) Going to Burn These Hedge Funds?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 28, so let’s proceed with the discussion of the hedge fund sentiment on New Mountain Finance Corporation (NYSE:NMFC).

New Mountain Finance Corporation (NYSE:NMFC) shareholders have witnessed an increase in support from the world’s most elite money managers recently. NMFC was in 11 hedge funds’ portfolios at the end of the second quarter of 2019. There were 9 hedge funds in our database with NMFC holdings at the end of the previous quarter. Our calculations also showed that NMFC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CHILTON INVESTMENT COMPANY

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the key hedge fund action encompassing New Mountain Finance Corporation (NYSE:NMFC).

How are hedge funds trading New Mountain Finance Corporation (NYSE:NMFC)?

At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the first quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in NMFC a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

No of Hedge Funds with NMFC Positions

More specifically, Arrowstreet Capital was the largest shareholder of New Mountain Finance Corporation (NYSE:NMFC), with a stake worth $16.6 million reported as of the end of March. Trailing Arrowstreet Capital was Millennium Management, which amassed a stake valued at $6.1 million. Polar Capital, McKinley Capital Management, and Chilton Investment Company were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, some big names were breaking ground themselves. Millennium Management, managed by Israel Englander, established the biggest position in New Mountain Finance Corporation (NYSE:NMFC). Millennium Management had $6.1 million invested in the company at the end of the quarter. Richard Chilton’s Chilton Investment Company also initiated a $1.5 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group and Bruce Kovner’s Caxton Associates LP.

Let’s now take a look at hedge fund activity in other stocks similar to New Mountain Finance Corporation (NYSE:NMFC). We will take a look at Neenah, Inc. (NYSE:NP), Presidio, Inc. (NASDAQ:PSDO), FB Financial Corporation (NYSE:FBK), and MGP Ingredients Inc (NASDAQ:MGPI). All of these stocks’ market caps match NMFC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NP 7 11350 0
PSDO 19 33607 -6
FBK 4 89082 -1
MGPI 7 24316 -6
Average 9.25 39589 -3.25

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 $40 million. That figure was $36 million in NMFC’s case. Presidio, Inc. (NASDAQ:PSDO) is the most popular stock in this table. On the other hand FB Financial Corporation (NYSE:FBK) is the least popular one with only 4 bullish hedge fund positions. New Mountain Finance Corporation (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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NMFC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NMFC were disappointed as the stock returned 0% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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