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Gladstone Capital Corporation (GLAD) Fell Out Of Favor With Hedge Funds

Abigail Fisher
·5 min read

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Gladstone Capital Corporation (NASDAQ:GLAD) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Gladstone Capital Corporation (NASDAQ:GLAD) investors should be aware of a decrease in hedge fund sentiment of late. Gladstone Capital Corporation (NASDAQ:GLAD) was in 3 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 7. Our calculations also showed that GLAD 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Ken Griffin
Ken Griffin

Ken Griffin of Citadel Investment Group

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 go over the new hedge fund action surrounding Gladstone Capital Corporation (NASDAQ:GLAD).

What does smart money think about Gladstone Capital Corporation (NASDAQ:GLAD)?

At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in GLAD a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Gladstone Capital Corporation (NASDAQ:GLAD) was held by Arrowstreet Capital, which reported holding $2.4 million worth of stock at the end of September. It was followed by McKinley Capital Management with a $0.8 million position. The only other hedge fund that is bullish on the company was Citadel Investment Group.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. 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 none of the 750+ hedge funds tracked by Insider Monkey identified GLAD as a viable investment and initiated a position in the stock.

Let's now review hedge fund activity in other stocks similar to Gladstone Capital Corporation (NASDAQ:GLAD). These stocks are Alta Equipment Group Inc. (NYSE:ALTG), Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA), CyberOptics Corporation (NASDAQ:CYBE), Pioneer Bancorp, Inc. (NASDAQ:PBFS), The First Bancorp, Inc. (NASDAQ:FNLC), Landmark Infrastructure Partners LP (NASDAQ:LMRK), and Movado Group, Inc (NYSE:MOV). All of these stocks' market caps are closest to GLAD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALTG,13,35500,-3 LTRPA,20,32328,-2 CYBE,9,19886,0 PBFS,2,2164,-1 FNLC,1,3771,0 LMRK,2,671,1 MOV,20,15927,2 Average,9.6,15750,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.6 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $3 million in GLAD's case. Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) is the most popular stock in this table. On the other hand The First Bancorp, Inc. (NASDAQ:FNLC) is the least popular one with only 1 bullish hedge fund positions. Gladstone Capital Corporation (NASDAQ:GLAD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GLAD is 22.1. 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. A small number of hedge funds were also right about betting on GLAD as the stock returned 13.8% since the end of the third quarter (through 11/23) and outperformed the market by an even larger margin.

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

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