Did Hedge Funds Make The Right Call On Bank OZK (OZK) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 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 March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtBank OZK (NASDAQ:OZK) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in Bank OZK (NASDAQ:OZK) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare OZK to other stocks including First Hawaiian, Inc. (NASDAQ:FHB), Gates Industrial Corporation plc (NYSE:GTES), and CenterState Bank Corporation (NASDAQ:CSFL) to get a better sense of its popularity.

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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s review the recent hedge fund action surrounding Bank OZK (NASDAQ:OZK).

What have hedge funds been doing with Bank OZK (NASDAQ:OZK)?

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OZK over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in Bank OZK (NASDAQ:OZK), which was worth $92.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $24.6 million worth of shares. Giverny Capital, Citadel Investment Group, and Millennium Management 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 Giverny Capital allocated the biggest weight to Bank OZK (NASDAQ:OZK), around 0.76% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, setting aside 0.7 percent of its 13F equity portfolio to OZK.

Judging by the fact that Bank OZK (NASDAQ:OZK) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of money managers who sold off their full holdings last quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $1.5 million in stock. Ray Dalio’s fund, Bridgewater Associates, also dumped its stock, about $0.8 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Bank OZK (NASDAQ:OZK). These stocks are First Hawaiian, Inc. (NASDAQ:FHB), Gates Industrial Corporation plc (NYSE:GTES), CenterState Bank Corporation (NASDAQ:CSFL), and CarGurus, Inc. (NASDAQ:CARG). All of these stocks’ market caps resemble OZK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $146 million in OZK’s case. CarGurus, Inc. (NASDAQ:CARG) is the most popular stock in this table. On the other hand Gates Industrial Corporation plc (NYSE:GTES) is the least popular one with only 8 bullish hedge fund positions. Bank OZK (NASDAQ:OZK) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on OZK as the stock returned 42.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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