We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Owl Rock Capital Corporation (NYSE:ORCC).
Owl Rock Capital Corporation (NYSE:ORCC) has seen an increase in support from the world’s most elite money managers of late. Our calculations also showed that ORCC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the latest hedge fund action regarding Owl Rock Capital Corporation (NYSE:ORCC).
Hedge fund activity in Owl Rock Capital Corporation (NYSE:ORCC)
At the end of the fourth quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in ORCC a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Blue Pool Capital held the most valuable stake in Owl Rock Capital Corporation (NYSE:ORCC), which was worth $121.9 million at the end of the third quarter. On the second spot was Soros Fund Management which amassed $21.5 million worth of shares. Arrowstreet Capital, Millennium Management, and Citadel 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 Blue Pool Capital allocated the biggest weight to Owl Rock Capital Corporation (NYSE:ORCC), around 42.27% of its 13F portfolio. Soros Fund Management is also relatively very bullish on the stock, setting aside 0.7 percent of its 13F equity portfolio to ORCC.
As one would reasonably expect, some big names were leading the bulls’ herd. JS Capital, managed by Jonathan Soros, initiated the largest position in Owl Rock Capital Corporation (NYSE:ORCC). JS Capital had $2.1 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $0.7 million position during the quarter. The only other fund with a brand new ORCC position is Frederick DiSanto’s Ancora Advisors.
Let’s also examine hedge fund activity in other stocks similar to Owl Rock Capital Corporation (NYSE:ORCC). We will take a look at WABCO Holdings Inc. (NYSE:WBC), Arrow Electronics, Inc. (NYSE:ARW), Dolby Laboratories, Inc. (NYSE:DLB), and Watsco Inc (NYSE:WSO). All of these stocks’ market caps resemble ORCC’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $647 million. That figure was $160 million in ORCC’s case. WABCO Holdings Inc. (NYSE:WBC) is the most popular stock in this table. On the other hand Watsco Inc (NYSE:WSO) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Owl Rock Capital Corporation (NYSE:ORCC) is even less popular than WSO. Hedge funds dodged a bullet by taking a bearish stance towards ORCC. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately ORCC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ORCC investors were disappointed as the stock returned -36.8% during the same time period 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 most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.