Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Is TCP Capital Corp (TCPC) Going to Burn These Hedge Funds?

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost around 20%. Facebook, which was the second most popular stock, lost 14% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is TCP Capital Corp (NASDAQ:TCPC) a healthy stock for your portfolio? The smart money is taking a bullish view. The number of bullish hedge fund positions rose by 1 lately. Our calculations also showed that TCPC isn’t among the 30 most popular stocks among hedge funds.

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 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

MILLENNIUM MANAGEMENT

Let’s take a peek at the recent hedge fund action encompassing TCP Capital Corp (NASDAQ:TCPC).

How are hedge funds trading TCP Capital Corp (NASDAQ:TCPC)?

Heading into the fourth quarter of 2018, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TCPC over the last 13 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

TCPC_dec2018

When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the number one position in TCP Capital Corp (NASDAQ:TCPC), worth close to $5.2 million, corresponding to less than 0.1%% of its total 13F portfolio. On Millennium Management’s heels is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $3.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers with similar optimism include D. E. Shaw’s D E Shaw, Robert B. Gillam’s McKinley Capital Management and Peter A. Wright’s P.A.W. CAPITAL PARTNERS.

As one would reasonably expect, key money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, assembled the most valuable position in TCP Capital Corp (NASDAQ:TCPC). Millennium Management had $5.2 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $3.9 million investment in the stock during the quarter. The following funds were also among the new TCPC investors: D. E. Shaw’s D E Shaw, Robert B. Gillam’s McKinley Capital Management, and Peter A. Wright’s P.A.W. CAPITAL PARTNERS.

Let’s now review hedge fund activity in other stocks similar to TCP Capital Corp (NASDAQ:TCPC). We will take a look at P.H. Glatfelter Company (NYSE:GLT), National CineMedia, Inc. (NASDAQ:NCMI), BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), and Connecticut Water Service, Inc. (NASDAQ:CTWS). This group of stocks’ market valuations match TCPC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLT 4 11422 0
NCMI 15 45676 1
BCRX 20 345445 5
CTWS 6 26624 -2
Average 11.25 107292 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $19 million in TCPC’s case. 0 is the most popular stock in this table. On the other hand P.H. Glatfelter Company (NYSE:GLT) is the least popular one with only 4 bullish hedge fund positions. TCP Capital Corp (NASDAQ:TCPC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BCRX might be a better candidate to consider a long position.

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

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.