While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Capitala Finance Corp (NASDAQ:CPTA).
Hedge fund interest in Capitala Finance Corp (NASDAQ:CPTA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that CPTA 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 Biolase Inc (NASDAQ:BIOL), WVS Financial Corp. (NASDAQ:WVFC), and MIND Technology, Inc. (NASDAQ:MIND) to gather more data points.
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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 10 most profitable companies in the world 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. With all of this in mind we’re going to review the new hedge fund action regarding Capitala Finance Corp (NASDAQ:CPTA).
Hedge fund activity in Capitala Finance Corp (NASDAQ:CPTA)
At third quarter’s end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 3 hedge funds with a bullish position in CPTA 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 Capitala Finance Corp (NASDAQ:CPTA) was held by Two Sigma Advisors, which reported holding $0.5 million worth of stock at the end of September. It was followed by Millennium Management with a $0.3 million position. The only other hedge fund that is bullish on the company was Arrowstreet Capital.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. 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 Millennium Management).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Capitala Finance Corp (NASDAQ:CPTA) but similarly valued. We will take a look at Biolase Inc (NASDAQ:BIOL), WVS Financial Corp. (NASDAQ:WVFC), MIND Technology, Inc. (NASDAQ:MIND), Brickell Biotech, Inc. (NASDAQ:BBI), Flexible Solutions International, Inc. (NYSE:FSI), Yield10 Bioscience, Inc. (NASDAQ:YTEN), and Celsion Corporation (NASDAQ:CLSN). This group of stocks’ market caps are similar to CPTA’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 2.6 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $1 million in CPTA’s case. Biolase Inc (NASDAQ:BIOL) is the most popular stock in this table. On the other hand WVS Financial Corp. (NASDAQ:WVFC) is the least popular one with only 1 bullish hedge fund positions. Capitala Finance Corp (NASDAQ:CPTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CPTA is 53.3. 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 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. Hedge funds were also right about betting on CPTA as the stock returned 13.5% since the end of Q3 (through 11/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.