Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not OneMain Holdings Inc (NYSE:OMF) makes for a good investment right now.
OneMain Holdings Inc (NYSE:OMF) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that OMF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by 41 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.
Matthew Lindenbaum of Basswood Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the latest hedge fund action surrounding OneMain Holdings Inc (NYSE:OMF).
How are hedge funds trading OneMain Holdings Inc (NYSE:OMF)?
Heading into the first quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 34% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in OMF a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Miller Value Partners, managed by Bill Miller, holds the biggest position in OneMain Holdings Inc (NYSE:OMF). Miller Value Partners has a $102.2 million position in the stock, comprising 3.6% of its 13F portfolio. Sitting at the No. 2 spot is Alex Lieblong of Key Colony Management, with a $87.1 million position; 86.2% of its 13F portfolio is allocated to the company. Other peers that hold long positions include Matthew Lindenbaum’s Basswood Capital, Renaissance Technologies and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Key Colony Management allocated the biggest weight to OneMain Holdings Inc (NYSE:OMF), around 86.17% of its 13F portfolio. Second Curve Capital is also relatively very bullish on the stock, dishing out 7.62 percent of its 13F equity portfolio to OMF.
Consequently, key hedge funds have been driving this bullishness. Key Colony Management, managed by Alex Lieblong, assembled the biggest position in OneMain Holdings Inc (NYSE:OMF). Key Colony Management had $87.1 million invested in the company at the end of the quarter. Ravi Chopra’s Azora Capital also initiated a $17.8 million position during the quarter. The other funds with new positions in the stock are Ari Zweiman’s 683 Capital Partners, Ken Heebner’s Capital Growth Management, and David Harding’s Winton Capital Management.
Let’s now review hedge fund activity in other stocks similar to OneMain Holdings Inc (NYSE:OMF). These stocks are Penumbra Inc (NYSE:PEN), WPX Energy Inc (NYSE:WPX), Manpowergroup Inc (NYSE:MAN), and First Citizens BancShares Inc. (NASDAQ:FCNCA). This group of stocks’ market values resemble OMF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEN | 30 | 308085 | 5 |
| WPX | 44 | 746371 | -3 |
| MAN | 27 | 476316 | 7 |
| FCNCA | 23 | 200352 | 5 |
| Average | 31 | 432781 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $433 million. That figure was $530 million in OMF’s case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand First Citizens BancShares Inc. (NASDAQ:FCNCA) is the least popular one with only 23 bullish hedge fund positions. OneMain Holdings Inc (NYSE:OMF) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately OMF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OMF were disappointed as the stock returned -45.2% during the same time period 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
