Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards OFG Bancorp (NYSE:OFG).
OFG Bancorp (NYSE:OFG) was in 11 hedge funds’ portfolios at the end of the third quarter of 2018. OFG shareholders have witnessed a decrease in hedge fund interest in recent months. There were 14 hedge funds in our database with OFG holdings at the end of the previous quarter. Our calculations also showed that ofg isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s review the recent hedge fund action encompassing OFG Bancorp (NYSE:OFG).
Hedge fund activity in OFG Bancorp (NYSE:OFG)
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in OFG at the beginning of this year. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in OFG Bancorp (NYSE:OFG) was held by GLG Partners, which reported holding $10.2 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $7.3 million position. Other investors bullish on the company included Renaissance Technologies, EJF Capital, and PEAK6 Capital Management.
Seeing as OFG Bancorp (NYSE:OFG) has faced falling interest from the smart money, logic holds that there exists a select few hedge funds that decided to sell off their full holdings in the third quarter. Intriguingly, Clint Carlson’s Carlson Capital said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth an estimated $11.4 million in stock. Bernard Horn’s fund, Polaris Capital Management, also cut its stock, about $4.4 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to OFG Bancorp (NYSE:OFG). These stocks are Ribbon Communications Inc. (NASDAQ:RBBN), Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria (NASDAQ:CRESY), KNOT Offshore Partners LP (NYSE:KNOP), and Flexion Therapeutics Inc (NASDAQ:FLXN). This group of stocks’ market valuations resemble OFG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RBBN | 11 | 41636 | 0 |
| CRESY | 5 | 23350 | 0 |
| KNOP | 4 | 8924 | 0 |
| FLXN | 15 | 111576 | 2 |
| Average | 8.75 | 46372 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $37 million in OFG’s case. Flexion Therapeutics Inc (NASDAQ:FLXN) is the most popular stock in this table. On the other hand KNOT Offshore Partners LP (NYSE:KNOP) is the least popular one with only 4 bullish hedge fund positions. OFG Bancorp (NYSE:OFG) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FLXN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
