Should I Avoid Monroe Capital Corp (MRCC)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Monroe Capital Corp (NASDAQ:MRCC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Monroe Capital Corp (NASDAQ:MRCC) investors should pay attention to a decrease in enthusiasm from smart money lately. Monroe Capital Corp (NASDAQ:MRCC) was in 3 hedge funds’ portfolios at the end of March. The all time high for this statistic is 6. Our calculations also showed that MRCC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to review the recent hedge fund action surrounding Monroe Capital Corp (NASDAQ:MRCC).

Do Hedge Funds Think MRCC Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -40% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MRCC over the last 23 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the largest position in Monroe Capital Corp (NASDAQ:MRCC). Two Sigma Advisors has a $1.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is McKinley Capital Management, which holds a $1 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism consist of Ken Griffin’s Citadel Investment Group, and . In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to Monroe Capital Corp (NASDAQ:MRCC), around 0.08% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, dishing out 0.0034 percent of its 13F equity portfolio to MRCC.

Because Monroe Capital Corp (NASDAQ:MRCC) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few fund managers that elected to cut their entire stakes heading into Q2. Interestingly, Ron Mass’s Almitas Capital dumped the biggest investment of the 750 funds watched by Insider Monkey, worth about $1.4 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund sold off about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q2.

Let’s go over hedge fund activity in other stocks similar to Monroe Capital Corp (NASDAQ:MRCC). These stocks are Matinas Biopharma Holdings, Inc. (NYSE:MTNB), Orion Energy Systems, Inc. (NYSE:OESX), Renren Inc (NYSE:RENN), Information Services Group, Inc. (NASDAQ:III), ADMA Biologics Inc (NASDAQ:ADMA), O2Micro International Limited (NASDAQ:OIIM), and SGOCO Group Ltd (NASDAQ:SGOC). This group of stocks’ market values are similar to MRCC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.4 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $2 million in MRCC’s case. Orion Energy Systems, Inc. (NYSE:OESX) is the most popular stock in this table. On the other hand Renren Inc (NYSE:RENN) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Monroe Capital Corp (NASDAQ:MRCC) is even less popular than RENN. Our overall hedge fund sentiment score for MRCC is 18. 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. Hedge funds clearly dropped the ball on MRCC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on MRCC as the stock returned 14% since Q1 (through June 11th) and outperformed the market by an even larger margin.

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

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