Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
OceanFirst Financial Corp. (NASDAQ:OCFC) has seen an increase in support from the world’s most elite money managers of late. Our calculations also showed that OCFC isn’t among the 30 most popular stocks among hedge funds.
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 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 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 our short portfolio.
We’re going to take a glance at the recent hedge fund action surrounding OceanFirst Financial Corp. (NASDAQ:OCFC).
Hedge fund activity in OceanFirst Financial Corp. (NASDAQ:OCFC)
Heading into the second quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards OCFC over the last 15 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in OceanFirst Financial Corp. (NASDAQ:OCFC), which was worth $29.6 million at the end of the first quarter. On the second spot was Private Capital Management which amassed $7.7 million worth of shares. Moreover, Driehaus Capital, Millennium Management, and Castine Capital Management were also bullish on OceanFirst Financial Corp. (NASDAQ:OCFC), allocating a large percentage of their portfolios to this stock.
Consequently, key hedge funds were leading the bulls’ herd. Castine Capital Management, managed by Paul Magidson, Jonathan Cohen. And Ostrom Enders, assembled the most valuable position in OceanFirst Financial Corp. (NASDAQ:OCFC). Castine Capital Management had $2.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $0.7 million investment in the stock during the quarter. The only other fund with a brand new OCFC position is David Harding’s Winton Capital Management.
Let’s also examine hedge fund activity in other stocks similar to OceanFirst Financial Corp. (NASDAQ:OCFC). These stocks are Camping World Holdings, Inc. (NYSE:CWH), The Marcus Corporation (NYSE:MCS), US Ecology Inc. (NASDAQ:ECOL), and Nabors Industries Ltd. (NYSE:NBR). This group of stocks’ market values resemble OCFC’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 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $98 million. That figure was $60 million in OCFC’s case. Nabors Industries Ltd. (NYSE:NBR) is the most popular stock in this table. On the other hand US Ecology Inc. (NASDAQ:ECOL) is the least popular one with only 9 bullish hedge fund positions. OceanFirst Financial Corp. (NASDAQ:OCFC) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately OCFC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OCFC investors were disappointed as the stock returned 2.6% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.