In this article we will take a look at whether hedge funds think Hercules Capital Inc (NYSE:HTGC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Hercules Capital Inc (NYSE:HTGC) a great investment right now? Investors who are in the know are becoming more confident. The number of bullish hedge fund bets advanced by 3 in recent months. Our calculations also showed that HTGC isn't among the 30 most popular stocks among hedge funds (click for Q1 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 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 58 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.
[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's review the new hedge fund action encompassing Hercules Capital Inc (NYSE:HTGC).
What have hedge funds been doing with Hercules Capital Inc (NYSE:HTGC)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in HTGC over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chen Tianqiao's Shanda Asset Management has the largest position in Hercules Capital Inc (NYSE:HTGC), worth close to $42.1 million, comprising 9.7% of its total 13F portfolio. Sitting at the No. 2 spot is Millennium Management, managed by Israel Englander, which holds a $6.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions consist of Paul Marshall and Ian Wace's Marshall Wace LLP, Robert B. Gillam's McKinley Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Shanda Asset Management allocated the biggest weight to Hercules Capital Inc (NYSE:HTGC), around 9.72% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, setting aside 0.21 percent of its 13F equity portfolio to HTGC.
As industrywide interest jumped, key money managers have been driving this bullishness. Shanda Asset Management, managed by Chen Tianqiao, assembled the largest position in Hercules Capital Inc (NYSE:HTGC). Shanda Asset Management had $42.1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $2.8 million position during the quarter. The other funds with brand new HTGC positions are Paul Tudor Jones's Tudor Investment Corp, John Overdeck and David Siegel's Two Sigma Advisors, and Joel Greenblatt's Gotham Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Hercules Capital Inc (NYSE:HTGC) but similarly valued. These stocks are The RMR Group Inc. (NASDAQ:RMR), Revance Therapeutics Inc (NASDAQ:RVNC), ePlus Inc. (NASDAQ:PLUS), and MaxLinear, Inc. (NYSE:MXL). All of these stocks' market caps match HTGC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RMR,14,76666,-7 RVNC,11,49067,-5 PLUS,13,31309,0 MXL,13,28040,-4 Average,12.75,46271,-4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $61 million in HTGC's case. The RMR Group Inc. (NASDAQ:RMR) is the most popular stock in this table. On the other hand Revance Therapeutics Inc (NASDAQ:RVNC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Hercules Capital Inc (NYSE:HTGC) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on HTGC as the stock returned 38.3% so far in Q2 (through June 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.