The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Bain Capital Specialty Finance, Inc. (NYSE:BCSF) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Hedge fund interest in Bain Capital Specialty Finance, Inc. (NYSE:BCSF) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that BCSF isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as German American Bancorp., Inc. (NASDAQ:GABC), Apria, Inc. (NASDAQ:APR), and Cars.com Inc. (NYSE:CARS) to gather more data points.
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 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 79 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.
David Siegel of Two Sigma Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 take a look at the key 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 the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. On the other hand, there were a total of 11 hedge funds with a bullish position in BCSF 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.
Among these funds, Arrowstreet Capital held the most valuable stake in Bain Capital Specialty Finance, Inc. (NYSE:BCSF), which was worth $15.5 million at the end of the second quarter. On the second spot was Two Sigma Advisors which amassed $3 million worth of shares. Gillson Capital, Schonfeld Strategic Advisors, and Citadel Investment Group 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 Callodine Capital Management allocated the biggest weight to Bain Capital Specialty Finance, Inc. (NYSE:BCSF), around 0.64% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, designating 0.21 percent of its 13F equity portfolio to BCSF.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital 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 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 also examine hedge fund activity in other stocks similar to Bain Capital Specialty Finance, Inc. (NYSE:BCSF). These stocks are German American Bancorp., Inc. (NASDAQ:GABC), Apria, Inc. (NASDAQ:APR), Cars.com Inc. (NYSE:CARS), Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), Sprott Inc. (NYSE:SII), Orla Mining Ltd. (NYSE:ORLA), and U.S. Auto Parts Network, Inc. (NASDAQ:PRTS). This group of stocks’ market values resemble BCSF’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GABC,9,13202,6 APR,15,87233,4 CARS,18,153351,0 RYTM,11,210426,-7 SII,9,140403,-2 ORLA,3,678,1 PRTS,22,229377,4 Average,12.4,119239,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.4 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $28 million in BCSF’s case. U.S. Auto Parts Network, Inc. (NASDAQ:PRTS) is the most popular stock in this table. On the other hand Orla Mining Ltd. (NYSE:ORLA) is the least popular one with only 3 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 48.4. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and surpassed the market again by 6.2 percentage points. Unfortunately BCSF wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); BCSF investors were disappointed as the stock returned -0.3% since the end of June (through 9/27) 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 in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.