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In this article we are going to use hedge fund sentiment as a tool and determine whether WhiteHorse Finance, Inc. (NASDAQ:WHF) is a good investment 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.
WhiteHorse Finance, Inc. (NASDAQ:WHF) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. Our calculations also showed that WHF 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 WHF to other stocks including VIA optronics AG (NYSE:VIAO), Civista Bancshares, Inc. (NASDAQ:CIVB), and Alpha Pro Tech, Ltd. (NYSE:APT) to get a better sense of its popularity.
Video: 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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Bruce Kovner of Caxton Associates LP
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 10 most profitable companies in the world 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. With all of this in mind let's analyze the key hedge fund action regarding WhiteHorse Finance, Inc. (NASDAQ:WHF).
What does smart money think about WhiteHorse Finance, Inc. (NASDAQ:WHF)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in WHF a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in WhiteHorse Finance, Inc. (NASDAQ:WHF) was held by Two Sigma Advisors, which reported holding $1.5 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $0.2 million position. The only other hedge fund that is bullish on the company was Caxton Associates LP.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace LLP).
Let's now take a look at hedge fund activity in other stocks similar to WhiteHorse Finance, Inc. (NASDAQ:WHF). These stocks are VIA optronics AG (NYSE:VIAO), Civista Bancshares, Inc. (NASDAQ:CIVB), Alpha Pro Tech, Ltd. (NYSE:APT), AquaBounty Technologies, Inc. (NASDAQ:AQB), ESSA Pharma Inc. (NASDAQ:EPIX), Verrica Pharmaceuticals Inc. (NASDAQ:VRCA), and Soleno Therapeutics, Inc. (NASDAQ:SLNO). This group of stocks' market valuations resemble WHF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VIAO,10,8592,10 CIVB,11,7096,-1 APT,6,24429,-2 AQB,4,1751,0 EPIX,16,72217,9 VRCA,4,41016,1 SLNO,13,45710,-2 Average,9.1,28687,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.1 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $2 million in WHF's case. ESSA Pharma Inc. (NASDAQ:EPIX) is the most popular stock in this table. On the other hand AquaBounty Technologies, Inc. (NASDAQ:AQB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks WhiteHorse Finance, Inc. (NASDAQ:WHF) is even less popular than AQB. Our overall hedge fund sentiment score for WHF is 16.3. 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 clearly dropped the ball on WHF as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on WHF as the stock returned 42.4% since Q3 (through November 23rd) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.