We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Omega Healthcare Investors Inc (NYSE:OHI) and determine whether hedge funds skillfully traded this stock.
Omega Healthcare Investors Inc (NYSE:OHI) investors should be aware of an increase in activity from the world’s largest hedge funds recently. Omega Healthcare Investors Inc (NYSE:OHI) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistics is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 17 hedge funds in our database with OHI positions at the end of the first quarter. Our calculations also showed that OHI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a look at the key hedge fund action encompassing Omega Healthcare Investors Inc (NYSE:OHI).
What does smart money think about Omega Healthcare Investors Inc (NYSE:OHI)?
At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OHI over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Omega Healthcare Investors Inc (NYSE:OHI) was held by D E Shaw, which reported holding $33 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $23.7 million position. Other investors bullish on the company included Renaissance Technologies, Waterfront Capital Partners, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Waterfront Capital Partners allocated the biggest weight to Omega Healthcare Investors Inc (NYSE:OHI), around 2.36% of its 13F portfolio. Hill Winds Capital is also relatively very bullish on the stock, setting aside 1.82 percent of its 13F equity portfolio to OHI.
Now, some big names have been driving this bullishness. Waterfront Capital Partners, managed by Eduardo Abush, created the most valuable position in Omega Healthcare Investors Inc (NYSE:OHI). Waterfront Capital Partners had $14.3 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $2.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Matthew Crandall Gilman’s Hill Winds Capital, and David Harding’s Winton Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Omega Healthcare Investors Inc (NYSE:OHI). We will take a look at OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), Newell Brands Inc. (NASDAQ:NWL), Lamar Advertising Company (REIT) (NASDAQ:LAMR), The Interpublic Group of Companies Inc (NYSE:IPG), American Airlines Group Inc (NASDAQ:AAL), RealPage, Inc. (NASDAQ:RP), and Commerce Bancshares, Inc. (NASDAQ:CBSH). This group of stocks’ market caps are closest to OHI’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OCFT,5,8062,2 NWL,33,1244198,9 LAMR,44,419738,10 IPG,22,501395,1 AAL,47,436618,11 RP,39,739694,10 CBSH,16,52750,1 Average,29.4,486065,6.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $486 million. That figure was $108 million in OHI’s case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) is the least popular one with only 5 bullish hedge fund positions. Omega Healthcare Investors Inc (NYSE:OHI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OHI is 61.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately OHI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OHI investors were disappointed as the stock returned 2.8% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.