The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Oaktree Specialty Lending Corporation (NASDAQ:OCSL) and find out how it is affected by hedge funds’ moves.
Oaktree Specialty Lending Corporation (NASDAQ:OCSL) was in 18 hedge funds’ portfolios at the end of the third quarter of 2019. OCSL has seen an increase in activity from the world’s largest hedge funds in recent months. There were 17 hedge funds in our database with OCSL holdings at the end of the previous quarter. Our calculations also showed that OCSL 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.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the key hedge fund action regarding Oaktree Specialty Lending Corporation (NASDAQ:OCSL).
What does smart money think about Oaktree Specialty Lending Corporation (NASDAQ:OCSL)?
Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OCSL over the last 17 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Springhouse Capital Management was the largest shareholder of Oaktree Specialty Lending Corporation (NASDAQ:OCSL), with a stake worth $34.9 million reported as of the end of September. Trailing Springhouse Capital Management was Arrowstreet Capital, which amassed a stake valued at $11 million. Millennium Management, Citadel Investment Group, and Solas Capital Management 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 Springhouse Capital Management allocated the biggest weight to Oaktree Specialty Lending Corporation (NASDAQ:OCSL), around 23.4% of its 13F portfolio. Solas Capital Management is also relatively very bullish on the stock, designating 3.38 percent of its 13F equity portfolio to OCSL.
Now, some big names have jumped into Oaktree Specialty Lending Corporation (NASDAQ:OCSL) headfirst. Bailard Inc, managed by Thomas Bailard, initiated the largest position in Oaktree Specialty Lending Corporation (NASDAQ:OCSL). Bailard Inc had $0.4 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $0.4 million position during the quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Oaktree Specialty Lending Corporation (NASDAQ:OCSL). We will take a look at Regis Corporation (NYSE:RGS), Live Oak Bancshares Inc (NASDAQ:LOB), Glu Mobile Inc. (NASDAQ:GLUU), and Arvinas, Inc. (NASDAQ:ARVN). This group of stocks’ market caps resemble OCSL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RGS | 13 | 289738 | -1 |
| LOB | 10 | 36893 | 4 |
| GLUU | 22 | 87877 | -1 |
| ARVN | 11 | 140075 | -2 |
| Average | 14 | 138646 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $74 million in OCSL’s case. Glu Mobile Inc. (NASDAQ:GLUU) is the most popular stock in this table. On the other hand Live Oak Bancshares Inc (NASDAQ:LOB) is the least popular one with only 10 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. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OCSL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OCSL were disappointed as the stock returned 2.3% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.
