World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Old Second Bancorp Inc. (NASDAQ:OSBC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of June. 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 Agenus Inc (NASDAQ:AGEN), Telenav Inc (NASDAQ:TNAV), and MarineMax, Inc. (NYSE:HZO) to gather more data points. Our calculations also showed that OSBC isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the fresh hedge fund action surrounding Old Second Bancorp Inc. (NASDAQ:OSBC).
What have hedge funds been doing with Old Second Bancorp Inc. (NASDAQ:OSBC)?
At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards OSBC over the last 16 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Old Second Bancorp Inc. (NASDAQ:OSBC), which was worth $14.3 million at the end of the second quarter. On the second spot was Castine Capital Management which amassed $8.1 million worth of shares. Moreover, Elizabeth Park Capital Management, Gillson Capital, and GLG Partners were also bullish on Old Second Bancorp Inc. (NASDAQ:OSBC), allocating a large percentage of their portfolios to this stock.
Seeing as Old Second Bancorp Inc. (NASDAQ:OSBC) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there exists a select few money managers who sold off their positions entirely in the second quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest position of all the hedgies watched by Insider Monkey, totaling about $0.1 million in stock, and Robert B. Gillam’s McKinley Capital Management was right behind this move, as the fund dropped about $0 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Old Second Bancorp Inc. (NASDAQ:OSBC). These stocks are Agenus Inc (NASDAQ:AGEN), Telenav Inc (NASDAQ:TNAV), MarineMax, Inc. (NYSE:HZO), and Roadrunner Transportation Systems Inc (NYSE:RRTS). This group of stocks’ market valuations match OSBC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGEN | 6 | 14030 | -1 |
| TNAV | 12 | 90686 | 2 |
| HZO | 7 | 7939 | -4 |
| RRTS | 2 | 325001 | -5 |
| Average | 6.75 | 109414 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $35 million in OSBC’s case. Telenav Inc (NASDAQ:TNAV) is the most popular stock in this table. On the other hand Roadrunner Transportation Systems Inc (NYSE:RRTS) is the least popular one with only 2 bullish hedge fund positions. Old Second Bancorp Inc. (NASDAQ:OSBC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately OSBC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OSBC were disappointed as the stock returned -4.2% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
