Where Do Hedge Funds Stand On TCG BDC, Inc. (CGBD)?

Debasis Saha
·6 min read

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 at Insider Monkey have plowed through 817 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of September 30th, about a month before the elections. In this article we look at what those investors think of TCG BDC, Inc. (NASDAQ:CGBD).

TCG BDC, Inc. (NASDAQ:CGBD) shareholders have witnessed a decrease in enthusiasm from smart money recently. TCG BDC, Inc. (NASDAQ:CGBD) was in 6 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. There were 8 hedge funds in our database with CGBD holdings at the end of June. Our calculations also showed that CGBD 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). 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 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 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.

David Siegel of Two Sigma Advisors
David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

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. Keeping this in mind we're going to take a gander at the new hedge fund action regarding TCG BDC, Inc. (NASDAQ:CGBD).

What does smart money think about TCG BDC, Inc. (NASDAQ:CGBD)?

At third quarter's end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CGBD over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CGBD A Good Stock To Buy?
Is CGBD A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the biggest position in TCG BDC, Inc. (NASDAQ:CGBD), worth close to $11.7 million, corresponding to less than 0.1%% of its total 13F portfolio. On Arrowstreet Capital's heels is D E Shaw, led by D. E. Shaw, holding a $6.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass James Morrow's Callodine Capital Management, John Overdeck and David Siegel's Two Sigma Advisors and Robert B. Gillam's McKinley Capital Management. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to TCG BDC, Inc. (NASDAQ:CGBD), around 2.99% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to CGBD.

Because TCG BDC, Inc. (NASDAQ:CGBD) has witnessed a decline in interest from hedge fund managers, logic holds that there exists a select few funds who sold off their full holdings in the third quarter. At the top of the heap, Israel Englander's Millennium Management said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, valued at close to $0.6 million in stock. Donald Sussman's fund, Paloma Partners, also cut its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as TCG BDC, Inc. (NASDAQ:CGBD) but similarly valued. These stocks are Neoleukin Therapeutics, Inc. (NASDAQ:NLTX), Fusion Pharmaceuticals Inc. (NASDAQ:FUSN), Extreme Networks, Inc (NASDAQ:EXTR), CymaBay Therapeutics Inc (NASDAQ:CBAY), Tredegar Corporation (NYSE:TG), The Bancorp, Inc. (NASDAQ:TBBK), and FutureFuel Corp. (NYSE:FF). This group of stocks' market values are similar to CGBD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NLTX,19,196607,0 FUSN,10,139823,-9 EXTR,16,68641,-2 CBAY,18,209182,-6 TG,12,52414,1 TBBK,18,55468,4 FF,12,48984,0 Average,15,110160,-1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $29 million in CGBD's case. Neoleukin Therapeutics, Inc. (NASDAQ:NLTX) is the most popular stock in this table. On the other hand Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks TCG BDC, Inc. (NASDAQ:CGBD) is even less popular than FUSN. Our overall hedge fund sentiment score for CGBD is 18. 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 CGBD 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on CGBD as the stock returned 22.8% since Q3 (through November 27th) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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