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Do Hedge Funds Like OneSpan Inc. (OSPN)?

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 OneSpan Inc. (NASDAQ:OSPN) and determine whether hedge funds skillfully traded this stock.

Hedge fund interest in OneSpan Inc. (NASDAQ:OSPN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare OSPN to other stocks including Bitauto Hldg Ltd (NYSE:BITA), Azure Power Global Limited (NYSE:AZRE), and CNX Midstream Partners LP (NYSE:CNXM) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 15 largest gold producing countries to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the recent hedge fund action encompassing OneSpan Inc. (NASDAQ:OSPN).

What have hedge funds been doing with OneSpan Inc. (NASDAQ:OSPN)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OSPN over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is OSPN A Good Stock To Buy?

Among these funds, Legion Partners Asset Management held the most valuable stake in OneSpan Inc. (NASDAQ:OSPN), which was worth $41.3 million at the end of the third quarter. On the second spot was Archon Capital Management which amassed $4.8 million worth of shares. D E Shaw, AQR Capital Management, and Alyeska 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 Legion Partners Asset Management allocated the biggest weight to OneSpan Inc. (NASDAQ:OSPN), around 17.43% of its 13F portfolio. Archon Capital Management is also relatively very bullish on the stock, setting aside 1.75 percent of its 13F equity portfolio to OSPN.

Because OneSpan Inc. (NASDAQ:OSPN) has experienced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there were a few funds that decided to sell off their entire stakes last quarter. At the top of the heap, Donald Sussman’s Paloma Partners dumped the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising about $0.4 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to OneSpan Inc. (NASDAQ:OSPN). We will take a look at Bitauto Hldg Ltd (NYSE:BITA), Azure Power Global Limited (NYSE:AZRE), CNX Midstream Partners LP (NYSE:CNXM), and Encore Capital Group, Inc. (NASDAQ:ECPG). This group of stocks’ market valuations match OSPN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BITA 18 99076 3
AZRE 4 10039 0
CNXM 2 7681 -3
ECPG 15 37246 2
Average 9.75 38511 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $63 million in OSPN’s case. Bitauto Hldg Ltd (NYSE:BITA) is the most popular stock in this table. On the other hand CNX Midstream Partners LP (NYSE:CNXM) is the least popular one with only 2 bullish hedge fund positions. OneSpan Inc. (NASDAQ:OSPN) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on OSPN as the stock returned 48.4% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.