It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Solar Capital Ltd. (NASDAQ:SLRC).
Is Solar Capital Ltd. (NASDAQ:SLRC) ready to rally soon? Investors who are in the know are taking a bullish view. The number of long hedge fund bets went up by 1 in recent months. Our calculations also showed that SLRC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SLRC was in 13 hedge funds' portfolios at the end of the third quarter of 2019. There were 12 hedge funds in our database with SLRC positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most market participants, hedge funds are seen as worthless, outdated financial tools of years past. While there are more than 8000 funds in operation at the moment, We hone in on the elite of this club, around 750 funds. It is estimated that this group of investors watch over the lion's share of the hedge fund industry's total asset base, and by watching their matchless picks, Insider Monkey has brought to light a few investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_224708" align="aligncenter" width="464"] New York Stock Exchange[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to take a look at the latest hedge fund action encompassing Solar Capital Ltd. (NASDAQ:SLRC).
Hedge fund activity in Solar Capital Ltd. (NASDAQ:SLRC)
Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in SLRC a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Clough Capital Partners held the most valuable stake in Solar Capital Ltd. (NASDAQ:SLRC), which was worth $15.7 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $10.5 million worth of shares. Polar Capital, McKinley Capital Management, and Gillson Capital 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 Solar Capital Ltd. (NASDAQ:SLRC), around 1.3% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, designating 0.33 percent of its 13F equity portfolio to SLRC.
There weren't any hedge funds initiating brand new positions in the stock during the third quarter.
Let's also examine hedge fund activity in other stocks similar to Solar Capital Ltd. (NASDAQ:SLRC). We will take a look at e.l.f. Beauty, Inc. (NYSE:ELF), NV5 Global, Inc. (NASDAQ:NVEE), Amneal Pharmaceuticals, Inc. (NYSE:AMRX), and Phreesia, Inc. (NYSE:PHR). All of these stocks' market caps match SLRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ELF,20,238245,2 NVEE,14,23017,2 AMRX,9,8377,-1 PHR,9,33757,9 Average,13,75849,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $52 million in SLRC's case. e.l.f. Beauty, Inc. (NYSE:ELF) is the most popular stock in this table. On the other hand Amneal Pharmaceuticals, Inc. (NYSE:AMRX) is the least popular one with only 9 bullish hedge fund positions. Solar Capital Ltd. (NASDAQ:SLRC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SLRC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SLRC investors were disappointed as the stock returned 0.5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.