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We at Insider Monkey have gone over 866 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article, we look at what those funds think of Stellus Capital Investment Corporation (NYSE:SCM) based on that data.
Stellus Capital Investment Corporation (NYSE:SCM) was in 3 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 6. SCM investors should pay attention to a decrease in support from the world's most elite money managers recently. There were 4 hedge funds in our database with SCM positions at the end of the fourth quarter. Our calculations also showed that SCM 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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 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. Keeping this in mind we're going to review the fresh hedge fund action encompassing Stellus Capital Investment Corporation (NYSE:SCM).
Do Hedge Funds Think SCM Is A Good Stock To Buy Now?
At Q1's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SCM over the last 23 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Stellus Capital Investment Corporation (NYSE:SCM), with a stake worth $2.9 million reported as of the end of March. Trailing Arrowstreet Capital was Two Sigma Advisors, which amassed a stake valued at $0.6 million. Citadel Investment Group was 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 Arrowstreet Capital allocated the biggest weight to Stellus Capital Investment Corporation (NYSE:SCM), around 0.0039% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, dishing out 0.0017 percent of its 13F equity portfolio to SCM.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. 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 SCM as a viable investment and initiated a position in the stock.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Stellus Capital Investment Corporation (NYSE:SCM) but similarly valued. We will take a look at Ocwen Financial Corporation (NYSE:OCN), Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), Braemar Hotels & Resorts Inc. (NYSE:BHR), MediciNova, Inc. (NASDAQ:MNOV), Flexsteel Industries, Inc. (NASDAQ:FLXS), Bel Fuse, Inc. (NASDAQ:BELFB), and EDAP TMS S.A. (NASDAQ:EDAP). This group of stocks' market valuations resemble SCM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OCN,10,43684,-2 CRBP,5,3931,-5 BHR,17,25551,1 MNOV,4,1162,0 FLXS,10,60969,-1 BELFB,8,21978,1 EDAP,8,26076,2 Average,8.9,26193,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.9 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $4 million in SCM's case. Braemar Hotels & Resorts Inc. (NYSE:BHR) 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. Compared to these stocks Stellus Capital Investment Corporation (NYSE:SCM) is even less popular than MNOV. Our overall hedge fund sentiment score for SCM is 19. 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. Hedge funds dodged a bullet by taking a bearish stance towards SCM. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th but managed to beat the market again by 3.3 percentage points. Unfortunately SCM wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); SCM investors were disappointed as the stock returned 4.5% since the end of the first quarter (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.