Were Hedge Funds Right About Bain Capital Specialty Finance, Inc. (BCSF)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is a good investment right now.

Is Bain Capital Specialty Finance, Inc. (NYSE:BCSF) a worthy stock to buy now? Money managers are turning bullish. The number of bullish hedge fund bets rose by 1 lately. Our calculations also showed that BCSF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BCSF was in 8 hedge funds’ portfolios at the end of December. There were 7 hedge funds in our database with BCSF holdings at the end of the previous quarter.

At the moment there are a lot of gauges investors have at their disposal to analyze stocks. A duo of the most useful gauges are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the top fund managers can outperform the broader indices by a significant amount (see the details here).

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the recent hedge fund action surrounding Bain Capital Specialty Finance, Inc. (NYSE:BCSF).

How are hedge funds trading Bain Capital Specialty Finance, Inc. (NYSE:BCSF)?

Heading into the first quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the third quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in BCSF a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Bain Capital Specialty Finance, Inc. (NYSE:BCSF) was held by Arrowstreet Capital, which reported holding $16.9 million worth of stock at the end of September. It was followed by Indaba Capital Management with a $8.4 million position. Other investors bullish on the company included Two Sigma Advisors, Citadel Investment Group, and D E Shaw. In terms of the portfolio weights assigned to each position Indaba Capital Management allocated the biggest weight to Bain Capital Specialty Finance, Inc. (NYSE:BCSF), around 3.39% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to BCSF.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the most valuable position in Bain Capital Specialty Finance, Inc. (NYSE:BCSF). Two Sigma Advisors had $5.2 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $2.9 million position during the quarter. The only other fund with a new position in the stock is Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks similar to Bain Capital Specialty Finance, Inc. (NYSE:BCSF). These stocks are RadNet Inc. (NASDAQ:RDNT), Ebix Inc (NASDAQ:EBIX), Cryolife Inc (NYSE:CRY), and DBV Technologies SA (NASDAQ:DBVT). All of these stocks’ market caps are similar to BCSF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RDNT 14 74415 -2
EBIX 19 82096 1
CRY 10 55721 0
DBVT 13 278565 6
Average 14 122699 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $123 million. That figure was $40 million in BCSF’s case. Ebix Inc (NASDAQ:EBIX) is the most popular stock in this table. On the other hand Cryolife Inc (NYSE:CRY) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is even less popular than CRY. Hedge funds dodged a bullet by taking a bearish stance towards BCSF. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately BCSF wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); BCSF investors were disappointed as the stock returned -49.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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