Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to OFG Bancorp (NYSE:OFG) changed recently.
OFG Bancorp (NYSE:OFG) shareholders have witnessed a decrease in hedge fund sentiment of late. Our calculations also showed that OFG isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the new hedge fund action surrounding OFG Bancorp (NYSE:OFG).
What have hedge funds been doing with OFG Bancorp (NYSE:OFG)?
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in OFG over the last 16 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 OFG Bancorp (NYSE:OFG) was held by Arrowstreet Capital, which reported holding $15.1 million worth of stock at the end of March. It was followed by AQR Capital Management with a $14.2 million position. Other investors bullish on the company included Renaissance Technologies, Driehaus Capital, and D E Shaw.
Judging by the fact that OFG Bancorp (NYSE:OFG) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of fund managers who sold off their positions entirely by the end of the second quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest stake of the 750 funds followed by Insider Monkey, worth close to $5.4 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $0.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as OFG Bancorp (NYSE:OFG) but similarly valued. We will take a look at AZZ Incorporated (NYSE:AZZ), Epizyme Inc (NASDAQ:EPZM), Varex Imaging Corporation (NASDAQ:VREX), and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA). This group of stocks’ market values match OFG’s market value.
|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 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $168 million. That figure was $85 million in OFG’s case. Epizyme Inc (NASDAQ:EPZM) is the most popular stock in this table. On the other hand AZZ Incorporated (NYSE:AZZ) is the least popular one with only 14 bullish hedge fund positions. OFG Bancorp (NYSE:OFG) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately OFG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OFG investors were disappointed as the stock returned -7.6% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.