Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Is Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) a bargain? Prominent investors are taking a pessimistic view. The number of bullish hedge fund bets decreased by 2 recently. Our calculations also showed that OLLI isn’t among the 30 most popular stocks among hedge funds. OLLI was in 22 hedge funds’ portfolios at the end of the first quarter of 2019. There were 24 hedge funds in our database with OLLI holdings at the end of the previous quarter.
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.
Let’s check out the fresh hedge fund action surrounding Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI).
How have hedgies been trading Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI)?
Heading into the second quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in OLLI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Marshall Wace LLP was the largest shareholder of Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), with a stake worth $48.7 million reported as of the end of March. Trailing Marshall Wace LLP was Junto Capital Management, which amassed a stake valued at $18.8 million. Shellback Capital, PDT Partners, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of funds who were dropping their entire stakes by the end of the third quarter. It’s worth mentioning that Lee Ainslie’s Maverick Capital cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $33.9 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $28.4 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) but similarly valued. These stocks are Morningstar, Inc. (NASDAQ:MORN), Gentex Corporation (NASDAQ:GNTX), New York Community Bancorp, Inc. (NYSE:NYCB-U), and Pure Storage, Inc. (NYSE:PSTG). All of these stocks’ market caps resemble OLLI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MORN | 21 | 225704 | 1 |
| GNTX | 23 | 308447 | 0 |
| NYCB-U | 3 | 26107 | 1 |
| PSTG | 21 | 725624 | -5 |
| Average | 17 | 321471 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $321 million. That figure was $155 million in OLLI’s case. Gentex Corporation (NASDAQ:GNTX) is the most popular stock in this table. On the other hand New York Community Bancorp, Inc. (NYSE:NYCB-U) is the least popular one with only 3 bullish hedge fund positions. Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on OLLI as the stock returned 7.2% during the same period 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.
