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Hedge Funds Are Done Buying Bank OZK (OZK)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Bank OZK (NASDAQ:OZK) based on those filings.

Hedge fund interest in Bank OZK (NASDAQ:OZK) shares was flat at the end of last quarter. This is usually a negative indicator. 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 First Hawaiian, Inc. (NASDAQ:FHB), Gates Industrial Corporation plc (NYSE:GTES), and CenterState Bank Corporation (NASDAQ:CSFL) to gather more data points. Our calculations also showed that OZK isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the key hedge fund action encompassing Bank OZK (NASDAQ:OZK).

What does smart money think about Bank OZK (NASDAQ:OZK)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in OZK a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in Bank OZK (NASDAQ:OZK) was held by Diamond Hill Capital, which reported holding $92.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $24.6 million position. Other investors bullish on the company included Giverny Capital, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Bank OZK (NASDAQ:OZK), around 0.76% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, setting aside 0.7 percent of its 13F equity portfolio to OZK.

Since Bank OZK (NASDAQ:OZK) has faced a decline in interest from the smart money, it’s safe to say that there was a specific group of funds who were dropping their full holdings last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, worth close to $1.5 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund dumped about $0.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Bank OZK (NASDAQ:OZK) but similarly valued. We will take a look at First Hawaiian, Inc. (NASDAQ:FHB), Gates Industrial Corporation plc (NYSE:GTES), CenterState Bank Corporation (NASDAQ:CSFL), and CarGurus, Inc. (NASDAQ:CARG). This group of stocks’ market values are closest to OZK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FHB 21 136967 3
GTES 8 23102 -1
CSFL 14 48481 -2
CARG 26 485392 -7
Average 17.25 173486 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $146 million in OZK’s case. CarGurus, Inc. (NASDAQ:CARG) is the most popular stock in this table. On the other hand Gates Industrial Corporation plc (NYSE:GTES) is the least popular one with only 8 bullish hedge fund positions. Bank OZK (NASDAQ:OZK) 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on OZK as the stock returned 57.4% in Q2 (through June 10th) 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.

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