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In this article we will check out the progression of hedge fund sentiment towards Bain Capital Specialty Finance, Inc. (NYSE:BCSF) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Bain Capital Specialty Finance, Inc. (NYSE:BCSF) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that BCSF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare BCSF to other stocks including LeMaitre Vascular Inc (NASDAQ:LMAT), Argan, Inc. (NYSE:AGX), and BJ's Restaurants, Inc. (NASDAQ:BJRI) to get a better sense of its popularity.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Minhua Zhang of Weld Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now we're going to review the new hedge fund action surrounding Bain Capital Specialty Finance, Inc. (NYSE:BCSF).
Do Hedge Funds Think BCSF Is A Good Stock To Buy Now?
At the end of September, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in BCSF a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Bain Capital Specialty Finance, Inc. (NYSE:BCSF) was held by Arrowstreet Capital, which reported holding $8.3 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $3.2 million position. Other investors bullish on the company included Gillson Capital, Callodine Capital Management, and McKinley Capital Management. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to Bain Capital Specialty Finance, Inc. (NYSE:BCSF), around 0.49% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, earmarking 0.36 percent of its 13F equity portfolio to BCSF.
Due to the fact that Bain Capital Specialty Finance, Inc. (NYSE:BCSF) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedgies that elected to cut their full holdings last quarter. Interestingly, Derek C. Schrier's Indaba Capital Management said goodbye to the largest stake of all the hedgies watched by Insider Monkey, comprising close to $3.5 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund cut about $0.7 million worth. These bearish behaviors are interesting, as total 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 Bain Capital Specialty Finance, Inc. (NYSE:BCSF) but similarly valued. These stocks are LeMaitre Vascular Inc (NASDAQ:LMAT), Argan, Inc. (NYSE:AGX), BJ's Restaurants, Inc. (NASDAQ:BJRI), Photronics, Inc. (NASDAQ:PLAB), American Axle & Manufacturing Holdings, Inc. (NYSE:AXL), Nexgen Energy Ltd. (NYSE:NXE), and Scorpio Tankers Inc. (NYSE:STNG). This group of stocks' market caps resemble BCSF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LMAT,7,5081,-2 AGX,13,61268,2 BJRI,14,43978,2 PLAB,20,74020,-1 AXL,22,59546,2 NXE,6,28476,-1 STNG,14,30314,-4 Average,13.7,43240,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.7 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $17 million in BCSF's case. American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) is the most popular stock in this table. On the other hand Nexgen Energy Ltd. (NYSE:NXE) is the least popular one with only 6 bullish hedge fund positions. Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BCSF is 50.6. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on BCSF as the stock returned 22.5% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.