Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Golden Ocean Group Ltd (NASDAQ:GOGL).
Is Golden Ocean Group (GOGL) a good stock to buy now? Investors who are in the know were getting less bullish. The number of bullish hedge fund bets retreated by 2 in recent months. Golden Ocean Group Ltd (NASDAQ:GOGL) was in 5 hedge funds’ portfolios at the end of September. The all time high for this statistics is 9. Our calculations also showed that GOGL isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a gander at the fresh hedge fund action surrounding Golden Ocean Group Ltd (NASDAQ:GOGL).
Hedge fund activity in Golden Ocean Group Ltd (NASDAQ:GOGL)
At the end of September, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in GOGL a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Platinum Asset Management, managed by Kerr Neilson, holds the largest position in Golden Ocean Group Ltd (NASDAQ:GOGL). Platinum Asset Management has a $45.8 million position in the stock, comprising 1.1% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, with a $9.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Platinum Asset Management allocated the biggest weight to Golden Ocean Group Ltd (NASDAQ:GOGL), around 1.13% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to GOGL.
Because Golden Ocean Group Ltd (NASDAQ:GOGL) has experienced bearish sentiment from hedge fund managers, we can see that there is a sect of money managers that elected to cut their full holdings by the end of the third quarter. At the top of the heap, Israel Englander’s Millennium Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, totaling about $0.1 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also said goodbye to its stock, about $0.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Golden Ocean Group Ltd (NASDAQ:GOGL) but similarly valued. We will take a look at CIRCOR International, Inc. (NYSE:CIR), Humanigen, Inc. (NASDAQ:HGEN), International Money Express, Inc. (NASDAQ:IMXI), Molecular Templates, Inc. (NASDAQ:MTEM), Endeavour Silver Corp. (NYSE:EXK), Harmonic Inc (NASDAQ:HLIT), and Oyster Point Pharma, Inc. (NASDAQ:OYST). This group of stocks’ market values are closest to GOGL’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 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $66 million in GOGL’s case. Molecular Templates, Inc. (NASDAQ:MTEM) is the most popular stock in this table. On the other hand Humanigen, Inc. (NASDAQ:HGEN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Golden Ocean Group Ltd (NASDAQ:GOGL) is even less popular than HGEN. Our overall hedge fund sentiment score for GOGL is 19.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on GOGL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on GOGL as the stock returned 12.3% since Q3 (through November 27th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.