We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Monroe Capital Corp (NASDAQ:MRCC).
Hedge fund interest in Monroe Capital Corp (NASDAQ:MRCC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MRCC 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 Lincoln Educational Services Corporation (NASDAQ:LINC), comScore, Inc. (NASDAQ:SCOR), and American Realty Investors, Inc. (NYSE:ARL) 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. Keeping this in mind let’s take a gander at the latest hedge fund action surrounding Monroe Capital Corp (NASDAQ:MRCC).
What does smart money think about Monroe Capital Corp (NASDAQ:MRCC)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MRCC over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, John Overdeck and David Siegel’s Two Sigma Advisors has the number one position in Monroe Capital Corp (NASDAQ:MRCC), worth close to $1.2 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by McKinley Capital Management, with a $0.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions include D. E. Shaw’s D E Shaw, 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 0.06% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, designating 0.0035 percent of its 13F equity portfolio to MRCC.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now take a look at hedge fund activity in other stocks similar to Monroe Capital Corp (NASDAQ:MRCC). These stocks are Lincoln Educational Services Corporation (NASDAQ:LINC), comScore, Inc. (NASDAQ:SCOR), American Realty Investors, Inc. (NYSE:ARL), Bel Fuse, Inc. (NASDAQ:BELFA), Lyra Therapeutics, Inc. (NASDAQ:LYRA), Western New England Bancorp, Inc. (NASDAQ:WNEB), and First Internet Bancorp (NASDAQ:INBK). This group of stocks’ market caps resemble MRCC’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 6.7 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $2 million in MRCC’s case. comScore, Inc. (NASDAQ:SCOR) is the most popular stock in this table. On the other hand American Realty Investors, Inc. (NYSE:ARL) is the least popular one with only 1 bullish hedge fund positions. Monroe Capital Corp (NASDAQ:MRCC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MRCC is 37.5. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on MRCC as the stock returned 29.1% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.