“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is Oaktree Specialty Lending Corporation (NASDAQ:OCSL) undervalued? Hedge funds are in a bearish mood. The number of bullish hedge fund positions retreated by 2 in recent months. Our calculations also showed that OCSL isn’t among the 30 most popular stocks among hedge funds. OCSL was in 12 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 14 hedge funds in our database with OCSL holdings at the end of the previous quarter.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a glance at the recent hedge fund action encompassing Oaktree Specialty Lending Corporation (NASDAQ:OCSL).
What have hedge funds been doing with Oaktree Specialty Lending Corporation (NASDAQ:OCSL)?
At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards OCSL over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Oaktree Specialty Lending Corporation (NASDAQ:OCSL) was held by Springhouse Capital Management, which reported holding $30.7 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $7.5 million position. Other investors bullish on the company included Arrowstreet Capital, Millennium Management, and D E Shaw.
Since Oaktree Specialty Lending Corporation (NASDAQ:OCSL) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies that slashed their positions entirely last quarter. Interestingly, Thomas Bailard’s Bailard Inc dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $0.6 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also dropped its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Oaktree Specialty Lending Corporation (NASDAQ:OCSL) but similarly valued. These stocks are Eros International plc (NYSE:EROS), ConnectOne Bancorp Inc (NASDAQ:CNOB), Live Oak Bancshares Inc (NASDAQ:LOB), and US Concrete Inc (NASDAQ:USCR). This group of stocks’ market values are closest to OCSL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EROS | 4 | 7995 | 1 |
| CNOB | 12 | 44013 | -3 |
| LOB | 11 | 29993 | 3 |
| USCR | 18 | 58528 | -1 |
| Average | 11.25 | 35132 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $55 million in OCSL’s case. US Concrete Inc (NASDAQ:USCR) is the most popular stock in this table. On the other hand Eros International plc (NYSE:EROS) is the least popular one with only 4 bullish hedge fund positions. Oaktree Specialty Lending Corporation (NASDAQ:OCSL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on OCSL as the stock returned 26.9% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
