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 Golub Capital BDC Inc (NASDAQ:GBDC).
Hedge fund interest in Golub Capital BDC Inc (NASDAQ:GBDC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare GBDC to other stocks including Sonos, Inc. (NASDAQ:SONO), Cardiovascular Systems Inc (NASDAQ:CSII), and ConvergeOne Holdings, Inc. (NASDAQ:CVON) to get a better sense of its popularity.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a look at the latest hedge fund action regarding Golub Capital BDC Inc (NASDAQ:GBDC).
What does the smart money think about Golub Capital BDC Inc (NASDAQ:GBDC)?
At Q4's end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in GBDC a year ago. So, let's see 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 $13.9 million reported as of the end of December. Trailing Clough Capital Partners was McKinley Capital Management, which amassed a stake valued at $3.5 million. D E Shaw, Polar Capital, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Golub Capital BDC Inc (NASDAQ:GBDC) has experienced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of fund managers that slashed their positions entirely by the end of the third quarter. Intriguingly, Israel Englander's Millennium Management dumped the largest stake of all the hedgies monitored by Insider Monkey, valued at about $2.4 million in stock, and Alec Litowitz and Ross Laser's Magnetar Capital was right behind this move, as the fund dumped about $0.3 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Golub Capital BDC Inc (NASDAQ:GBDC). These stocks are Sonos, Inc. (NASDAQ:SONO), Cardiovascular Systems Inc (NASDAQ:CSII), ConvergeOne Holdings, Inc. (NASDAQ:CVON), and Astronics Corporation (NASDAQ:ATRO). All of these stocks' market caps match GBDC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SONO,12,23760,2 CSII,21,153645,-1 CVON,5,72749,2 ATRO,7,61193,-3 Average,11.25,77837,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $28 million in GBDC's case. Cardiovascular Systems Inc (NASDAQ:CSII) is the most popular stock in this table. On the other hand ConvergeOne Holdings, Inc. (NASDAQ:CVON) is the least popular one with only 5 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately GBDC wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); GBDC investors were disappointed as the stock returned 12% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.