How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Omnicom Group Inc. (NYSE:OMC) and determine whether hedge funds had an edge regarding this stock.
Omnicom Group Inc. (NYSE:OMC) was in 31 hedge funds’ portfolios at the end of the first quarter of 2020. OMC shareholders have witnessed an increase in hedge fund sentiment recently. There were 22 hedge funds in our database with OMC positions at the end of the previous quarter. Our calculations also showed that OMC 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.
In the eyes of most stock holders, hedge funds are viewed as underperforming, old investment vehicles of yesteryear. While there are greater than 8000 funds in operation today, We hone in on the bigwigs of this club, approximately 850 funds. These money managers direct bulk of all hedge funds’ total capital, and by observing their finest investments, Insider Monkey has unearthed various investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. Now we’re going to take a look at the key hedge fund action regarding Omnicom Group Inc. (NYSE:OMC).
Hedge fund activity in Omnicom Group Inc. (NYSE:OMC)
At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 41% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards OMC over the last 18 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Omnicom Group Inc. (NYSE:OMC), which was worth $87 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $48.9 million worth of shares. Ariel Investments, Citadel Investment Group, and Marshall Wace LLP 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 L2 Asset Management allocated the biggest weight to Omnicom Group Inc. (NYSE:OMC), around 1.82% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, dishing out 0.73 percent of its 13F equity portfolio to OMC.
Now, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most valuable position in Omnicom Group Inc. (NYSE:OMC). Marshall Wace LLP had $20.3 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also initiated a $17 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, David Costen Haley’s HBK Investments, and Lee Ainslie’s Maverick Capital.
Let’s now review hedge fund activity in other stocks similar to Omnicom Group Inc. (NYSE:OMC). We will take a look at Paycom Software Inc (NYSE:PAYC), Steris Plc (NYSE:STE), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), and Rollins, Inc. (NYSE:ROL). This group of stocks’ market valuations are similar to OMC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PAYC | 30 | 239228 | 3 |
| STE | 35 | 554570 | 2 |
| CRWD | 65 | 1301564 | 17 |
| ROL | 25 | 447589 | -9 |
| Average | 38.75 | 635738 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $636 million. That figure was $328 million in OMC’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Rollins, Inc. (NYSE:ROL) is the least popular one with only 25 bullish hedge fund positions. Omnicom Group Inc. (NYSE:OMC) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 and surpassed the market by 15.5 percentage points. Unfortunately OMC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OMC investors were disappointed as the stock returned 0.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
