Is PennantPark Investment Corp. (NASDAQ:PNNT) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
PennantPark Investment Corp. (NASDAQ:PNNT) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of the second quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Jernigan Capital Inc (NYSE:JCAP), BioDelivery Sciences International, Inc. (NASDAQ:BDSI), and Mistras Group, Inc. (NYSE:MG) to gather more data points. Our calculations also showed that PNNT isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the recent hedge fund action regarding PennantPark Investment Corp. (NASDAQ:PNNT).
How are hedge funds trading PennantPark Investment Corp. (NASDAQ:PNNT)?
At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PNNT over the last 16 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in PennantPark Investment Corp. (NASDAQ:PNNT). Arrowstreet Capital has a $8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Arrowstreet Capital's heels is John Overdeck and David Siegel of Two Sigma Advisors, with a $2.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism comprise Robert B. Gillam's McKinley Capital Management, Israel Englander's Millennium Management and D. E. Shaw's D E Shaw.
Judging by the fact that PennantPark Investment Corp. (NASDAQ:PNNT) has faced declining sentiment from the smart money, logic holds that there lies a certain "tier" of funds that decided to sell off their full holdings last quarter. Intriguingly, Michael Platt and William Reeves's BlueCrest Capital Mgmt. dropped the largest position of all the hedgies monitored by Insider Monkey, worth close to $0.1 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund said goodbye to about $0.1 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as PennantPark Investment Corp. (NASDAQ:PNNT) but similarly valued. These stocks are Jernigan Capital Inc (NYSE:JCAP), BioDelivery Sciences International, Inc. (NASDAQ:BDSI), Mistras Group, Inc. (NYSE:MG), and MediciNova, Inc. (NASDAQ:MNOV). This group of stocks' market valuations are similar to PNNT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JCAP,15,39852,0 BDSI,16,118529,-2 MG,10,28465,0 MNOV,4,6107,1 Average,11.25,48238,-0.25 [/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 $48 million. That figure was $16 million in PNNT's case. BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is the most popular stock in this table. On the other hand MediciNova, Inc. (NASDAQ:MNOV) is the least popular one with only 4 bullish hedge fund positions. PennantPark Investment Corp. (NASDAQ:PNNT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on PNNT, though not to the same extent, as the stock returned 2.1% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.