It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Bank OZK (NASDAQ:OZK).
Is Bank OZK (NASDAQ:OZK) the right pick for your portfolio? The best stock pickers are getting less optimistic. The number of long hedge fund positions went down by 2 lately. Our calculations also showed that OZK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the fresh hedge fund action surrounding Bank OZK (NASDAQ:OZK).
What does smart money think about Bank OZK (NASDAQ:OZK)?
At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in OZK a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Bank OZK (NASDAQ:OZK), with a stake worth $168.3 million reported as of the end of September. Trailing Diamond Hill Capital was Renaissance Technologies, which amassed a stake valued at $42.8 million. Giverny Capital, Millennium Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Bank OZK (NASDAQ:OZK), around 1.99% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 1.23 percent of its 13F equity portfolio to OZK.
Judging by the fact that Bank OZK (NASDAQ:OZK) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few fund managers who were dropping their positions entirely last quarter. Interestingly, Lee Ainslie’s Maverick Capital dumped the biggest stake of the 750 funds tracked by Insider Monkey, comprising about $7.9 million in stock. Donald Sussman’s fund, Paloma Partners, also sold off its stock, about $2.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Bank OZK (NASDAQ:OZK) but similarly valued. These stocks are Glacier Bancorp, Inc. (NASDAQ:GBCI), LogMeIn Inc (NASDAQ:LOGM), United Therapeutics Corporation (NASDAQ:UTHR), and Univar Solutions Inc. (NYSE:UNVR). This group of stocks’ market valuations are similar to OZK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GBCI | 13 | 47527 | -4 |
| LOGM | 29 | 295210 | 2 |
| UTHR | 30 | 1131522 | 0 |
| UNVR | 37 | 1331993 | 6 |
| Average | 27.25 | 701563 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $702 million. That figure was $283 million in OZK’s case. Univar Solutions Inc. (NYSE:UNVR) is the most popular stock in this table. On the other hand Glacier Bancorp, Inc. (NASDAQ:GBCI) is the least popular one with only 13 bullish hedge fund positions. Bank OZK (NASDAQ:OZK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on OZK, though not to the same extent, as the stock returned 9.9% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
