Hedge Funds Are Selling Solar Capital Ltd. (SLRC)
In this article you are going to find out whether hedge funds think Solar Capital Ltd. (NASDAQ:SLRC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Solar Capital Ltd. (NASDAQ:SLRC) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that SLRC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_27480" align="aligncenter" width="400"]
Israel Englander of Millennium Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's go over the key hedge fund action surrounding Solar Capital Ltd. (NASDAQ:SLRC).
How are hedge funds trading Solar Capital Ltd. (NASDAQ:SLRC)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SLRC over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Solar Capital Ltd. (NASDAQ:SLRC) was held by Millennium Management, which reported holding $6.5 million worth of stock at the end of September. It was followed by Polar Capital with a $3.9 million position. Other investors bullish on the company included Two Sigma Advisors, Gillson Capital, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Gillson Capital allocated the biggest weight to Solar Capital Ltd. (NASDAQ:SLRC), around 0.56% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, dishing out 0.21 percent of its 13F equity portfolio to SLRC.
Because Solar Capital Ltd. (NASDAQ:SLRC) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of money managers that decided to sell off their full holdings last quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP dropped the largest stake of all the hedgies monitored by Insider Monkey, totaling close to $1.2 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund sold off about $0.2 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Solar Capital Ltd. (NASDAQ:SLRC) but similarly valued. We will take a look at ACCO Brands Corporation (NYSE:ACCO), A10 Networks Inc (NYSE:ATEN), Vermilion Energy Inc (NYSE:VET), and RPT Realty (NYSE:RPT). This group of stocks' market values match SLRC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACCO,18,26582,0 ATEN,19,110335,1 VET,8,1314,0 RPT,12,16984,-1 Average,14.25,38804,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $28 million in SLRC's case. A10 Networks Inc (NYSE:ATEN) is the most popular stock in this table. On the other hand Vermilion Energy Inc (NYSE:VET) is the least popular one with only 8 bullish hedge fund positions. Solar Capital Ltd. (NASDAQ:SLRC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on SLRC as the stock returned 41.6% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
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