Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Oaktree Capital Group LLC (NYSE:OAK)? The smart money sentiment can provide an answer to this question.
Oaktree Capital Group LLC (NYSE:OAK) investors should pay attention to an increase in enthusiasm from smart money lately. OAK was in 17 hedge funds’ portfolios at the end of June. There were 15 hedge funds in our database with OAK holdings at the end of the previous quarter. Our calculations also showed that OAK isn’t among the 30 most popular stocks among hedge funds (view 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 some fund managers who are betting on Dow reaching 40000 in a year, 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. We’re going to analyze the latest hedge fund action surrounding Oaktree Capital Group LLC (NYSE:OAK).
Hedge fund activity in Oaktree Capital Group LLC (NYSE:OAK)
Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in OAK a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Oaktree Capital Group LLC (NYSE:OAK) was held by Water Island Capital, which reported holding $37 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $36.5 million position. Other investors bullish on the company included Markel Gayner Asset Management, Horizon Asset Management, and Ariel Investments.
As aggregate interest increased, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in Oaktree Capital Group LLC (NYSE:OAK). Arrowstreet Capital had $5.2 million invested in the company at the end of the quarter. Frederick DiSanto’s Ancora Advisors also initiated a $2.7 million position during the quarter. The other funds with brand new OAK positions are Perella Weinberg Partners, Paul Marshall and Ian Wace’s Marshall Wace LLP, and David Andre and Astro Teller’s Cerebellum Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Oaktree Capital Group LLC (NYSE:OAK) but similarly valued. These stocks are Lamar Advertising Co (NASDAQ:LAMR), Catalent Inc (NYSE:CTLT), Bio-Techne Corporation (NASDAQ:TECH), and RPM International Inc. (NYSE:RPM). This group of stocks’ market valuations are similar to OAK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LAMR | 24 | 242953 | 4 |
| CTLT | 20 | 427262 | 5 |
| TECH | 24 | 352676 | 6 |
| RPM | 25 | 454818 | 4 |
| Average | 23.25 | 369427 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $369 million. That figure was $146 million in OAK’s case. RPM International Inc. (NYSE:RPM) is the most popular stock in this table. On the other hand Catalent Inc (NYSE:CTLT) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Oaktree Capital Group LLC (NYSE:OAK) is even less popular than CTLT. 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. A small number of hedge funds were also right about betting on OAK, though not to the same extent, as the stock returned 4% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
