Hedge Funds Have Never Been This Bullish On Golub Capital BDC Inc (GBDC)
We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Golub Capital BDC Inc (NASDAQ:GBDC).
Golub Capital BDC Inc (NASDAQ:GBDC) investors should pay attention to an increase in support from the world's most elite money managers of late. Our calculations also showed that GBDC 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).
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 more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_365194" align="aligncenter" width="400"]
David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind we're going to take a look at the key hedge fund action surrounding Golub Capital BDC Inc (NASDAQ:GBDC).
What does smart money think about Golub Capital BDC Inc (NASDAQ:GBDC)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GBDC over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Clough Capital Partners was the largest shareholder of Golub Capital BDC Inc (NASDAQ:GBDC), with a stake worth $32 million reported as of the end of September. Trailing Clough Capital Partners was Arrowstreet Capital, which amassed a stake valued at $24.4 million. D E Shaw, Millennium Management, and Citadel Investment Group 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 Clough Capital Partners allocated the biggest weight to Golub Capital BDC Inc (NASDAQ:GBDC), around 2.73% of its 13F portfolio. Almitas Capital is also relatively very bullish on the stock, setting aside 0.84 percent of its 13F equity portfolio to GBDC.
Consequently, key hedge funds have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most valuable position in Golub Capital BDC Inc (NASDAQ:GBDC). Two Sigma Advisors had $3 million invested in the company at the end of the quarter. Daniel Johnson's Gillson Capital also made a $2.8 million investment in the stock during the quarter. The other funds with brand new GBDC positions are Ron Mass's Almitas Capital, Karim Abbadi and Edward McBride's Centiva Capital, and John Nevin Jr's Ayrshire Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Golub Capital BDC Inc (NASDAQ:GBDC) but similarly valued. We will take a look at LivePerson, Inc. (NASDAQ:LPSN), Crescent Point Energy Corp (NYSE:CPG), Evertec Inc (NYSE:EVTC), and Yelp Inc (NYSE:YELP). This group of stocks' market values are closest to GBDC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LPSN,23,202344,7 CPG,14,73177,2 EVTC,19,270812,-7 YELP,27,360550,-2 Average,20.75,226721,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $117 million in GBDC's case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Crescent Point Energy Corp (NYSE:CPG) is the least popular one with only 14 bullish hedge fund positions. Golub Capital BDC Inc (NASDAQ:GBDC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately GBDC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GBDC investors were disappointed as the stock returned -33.3% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.
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