In this article we will check out the progression of hedge fund sentiment towards Newtek Business Services Corp (NASDAQ:NEWT) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Newtek Business Services Corp (NASDAQ:NEWT) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Newtek Business Services Corp (NASDAQ:NEWT) was in 5 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 8. Our calculations also showed that NEWT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 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 115 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
David E. Shaw of D.E. Shaw
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $27 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. Now let's analyze the fresh hedge fund action encompassing Newtek Business Services Corp (NASDAQ:NEWT).
Do Hedge Funds Think NEWT Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NEWT over the last 23 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, McKinley Capital Management held the most valuable stake in Newtek Business Services Corp (NASDAQ:NEWT), which was worth $3.6 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $1.1 million worth of shares. Two Sigma Advisors, Citadel Investment Group, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to Newtek Business Services Corp (NASDAQ:NEWT), around 0.27% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, dishing out 0.0038 percent of its 13F equity portfolio to NEWT.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet 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 none of the 750+ hedge funds tracked by Insider Monkey identified NEWT as a viable investment and initiated a position in the stock.
Let's check out hedge fund activity in other stocks similar to Newtek Business Services Corp (NASDAQ:NEWT). We will take a look at OneWater Marine Inc. (NASDAQ:ONEW), Insteel Industries Inc (NASDAQ:IIIN), KNOT Offshore Partners LP (NYSE:KNOP), Poseida Therapeutics, Inc. (NASDAQ:PSTX), Gatos Silver, Inc. (NYSE:GATO), Solid Biosciences Inc. (NASDAQ:SLDB), and Gilat Satellite Networks Ltd. (NASDAQ:GILT). This group of stocks' market caps resemble NEWT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ONEW,14,79135,2 IIIN,12,26376,1 KNOP,4,28610,0 PSTX,11,95566,2 GATO,4,20055,0 SLDB,24,257972,9 GILT,8,30252,3 Average,11,76852,2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $5 million in NEWT's case. Solid Biosciences Inc. (NASDAQ:SLDB) is the most popular stock in this table. On the other hand KNOT Offshore Partners LP (NYSE:KNOP) is the least popular one with only 4 bullish hedge fund positions. Newtek Business Services Corp (NASDAQ:NEWT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NEWT is 25.3. 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 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 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. A small number of hedge funds were also right about betting on NEWT as the stock returned 28.2% since the end of the first quarter (through 6/18) 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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