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 follow the hedge fund activity in the small-cap space.
Is Ocwen Financial Corp (NYSE:OCN) a buy here? Money managers are categorically buying. The number of bullish hedge fund positions that are disclosed in regulatory 13F filings inched up by 1 lately. OCN was in 17 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with OCN holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Boulevard Acquisition Corp II (NASDAQ:BLVD), Catchmark Timber Trust Inc (NYSE:CTT), and NewStar Financial Inc (NASDAQ:NEWS) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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With all of this in mind, we’re going to take a look at the key action encompassing Ocwen Financial Corp (NYSE:OCN).
Hedge fund activity in Ocwen Financial Corp (NYSE:OCN)
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, up 6% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in OCN over the last 5 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Kingstown Capital Management, led by Michael Blitzer, holds the number one position in Ocwen Financial Corp (NYSE:OCN). According to regulatory filings, the fund has a $31.2 million position in the stock, comprising 3.5% of its 13F portfolio. Coming in second is Tegean Capital Management, led by Thomas G. Maheras, holding a $5.3 million position; 5.8% of its 13F portfolio is allocated to the company. Some other peers that hold long positions encompass Michael Hintze’s CQS Cayman LP, Millennium Management, one of the 10 largest hedge funds in the world, and Michael Kao’s Akanthos Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Now, key money managers were leading the bulls’ herd. Israel Englander’s Millennium Management initiated the most valuable position in Ocwen Financial Corp (NYSE:OCN). According to its latest 13F filing, the fund had $4.1 million invested in the company at the end of the quarter. Glenn Russell Dubin’s Highbridge Capital Management also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Ocwen Financial Corp (NYSE:OCN). We will take a look at Boulevard Acquisition Corp II (NASDAQ:BLVD), Catchmark Timber Trust Inc (NYSE:CTT), NewStar Financial Inc (NASDAQ:NEWS), and Everbridge Inc (NASDAQ:EVBG). All of these stocks’ market caps resemble OCN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BLVD | 11 | 146114 | 0 |
| CTT | 13 | 34095 | 2 |
| NEWS | 4 | 118119 | 0 |
| EVBG | 13 | 25290 | 13 |
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $63 million in OCN’s case. Catchmark Timber Trust Inc (NYSE:CTT) is the most popular stock in this table. On the other hand NewStar Financial Inc (NASDAQ:NEWS) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Ocwen Financial Corp (NYSE:OCN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
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