We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Osmotica Pharmaceuticals plc (NASDAQ:OSMT).
Is OSMT a good stock to buy now? The smart money was taking a bearish view. The number of bullish hedge fund positions went down by 1 recently. Osmotica Pharmaceuticals plc (NASDAQ:OSMT) was in 9 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 10. Our calculations also showed that OSMT 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.
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 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 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.
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 peek at the latest hedge fund action surrounding Osmotica Pharmaceuticals plc (NASDAQ:OSMT).
Do Hedge Funds Think OSMT Is A Good Stock To Buy Now?
At the end of September, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards OSMT over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, DG Capital Management, managed by Dov Gertzulin, holds the most valuable position in Osmotica Pharmaceuticals plc (NASDAQ:OSMT). DG Capital Management has a $8.2 million position in the stock, comprising 4.9% of its 13F portfolio. On DG Capital Management’s heels is Renaissance Technologies, holding a $5.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish consist of Alec Litowitz and Ross Laser’s Magnetar Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position DG Capital Management allocated the biggest weight to Osmotica Pharmaceuticals plc (NASDAQ:OSMT), around 4.91% of its 13F portfolio. Magnetar Capital is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to OSMT.
Seeing as Osmotica Pharmaceuticals plc (NASDAQ:OSMT) has witnessed bearish sentiment from the smart money, it’s easy to see that there exists a select few fund managers that elected to cut their full holdings by the end of the third quarter. At the top of the heap, Kamran Moghtaderi’s Eversept Partners cut the largest position of all the hedgies followed by Insider Monkey, comprising an estimated $0.5 million in stock. Ken Griffin’s fund, Citadel Investment Group, also cut its stock, about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Osmotica Pharmaceuticals plc (NASDAQ:OSMT) but similarly valued. We will take a look at HF Foods Group Inc. (NASDAQ:HFFG), Cytosorbents Corp (NASDAQ:CTSO), Bridge Bancorp, Inc. (NASDAQ:BDGE), Crawford & Company (NYSE:CRD), Vishay Precision Group Inc (NYSE:VPG), Wanda Sports Group Company Limited (NASDAQ:WSG), and DURECT Corporation (NASDAQ:DRRX). This group of stocks’ market caps are similar to OSMT’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 9.3 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $20 million in OSMT’s case. Vishay Precision Group Inc (NYSE:VPG) is the most popular stock in this table. On the other hand HF Foods Group Inc. (NASDAQ:HFFG) is the least popular one with only 2 bullish hedge fund positions. Osmotica Pharmaceuticals plc (NASDAQ:OSMT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OSMT is 57.9. 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. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on OSMT as the stock returned 11.6% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.