Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about New Mountain Finance Corp. (NYSE:NMFC) in this article.
Is NMFC a good stock to buy now? Hedge fund interest in New Mountain Finance Corp. (NYSE:NMFC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that NMFC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as City Holding Company (NASDAQ:CHCO), NetGear, Inc. (NASDAQ:NTGR), and Pitney Bowes Inc. (NYSE:PBI) to gather more data points.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s review the fresh hedge fund action encompassing New Mountain Finance Corp. (NYSE:NMFC).
Do Hedge Funds Think NMFC Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in NMFC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in New Mountain Finance Corp. (NYSE:NMFC) was held by Arrowstreet Capital, which reported holding $12.3 million worth of stock at the end of September. It was followed by Chilton Investment Company with a $5.2 million position. Other investors bullish on the company included McKinley Capital Management, Winton Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Chilton Investment Company allocated the biggest weight to New Mountain Finance Corp. (NYSE:NMFC), around 0.15% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, setting aside 0.13 percent of its 13F equity portfolio to NMFC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace LLP).
Let’s go over 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 City Holding Company (NASDAQ:CHCO), NetGear, Inc. (NASDAQ:NTGR), Pitney Bowes Inc. (NYSE:PBI), Enanta Pharmaceuticals Inc (NASDAQ:ENTA), Banco Macro SA (NYSE:BMA), nLIGHT, Inc. (NASDAQ:LASR), and Teekay LNG Partners L.P. (NYSE:TGP). 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|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.4 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $23 million in NMFC’s case. Pitney Bowes Inc. (NYSE:PBI) is the most popular stock in this table. On the other hand City Holding Company (NASDAQ:CHCO) is the least popular one with only 6 bullish hedge fund positions. New Mountain Finance Corp. (NYSE:NMFC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NMFC is 34.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on NMFC as the stock returned 26% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.