Is Oxford Square Capital Corp. (OXSQ) Going To Burn These Hedge Funds ?

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Oxford Square Capital Corp. (NASDAQ:OXSQ).

Oxford Square Capital Corp. (NASDAQ:OXSQ) was in 8 hedge funds’ portfolios at the end of the third quarter of 2019. OXSQ has seen an increase in activity from the world’s largest hedge funds lately. There were 5 hedge funds in our database with OXSQ positions at the end of the previous quarter. Our calculations also showed that OXSQ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are a lot of metrics market participants can use to grade stocks. Two of the less utilized metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the elite money managers can outclass the S&P 500 by a superb margin (see the details here).


Israel Englander of Millennium Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the latest hedge fund action surrounding Oxford Square Capital Corp. (NASDAQ:OXSQ).

What have hedge funds been doing with Oxford Square Capital Corp. (NASDAQ:OXSQ)?

Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 60% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OXSQ over the last 17 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is OXSQ A Good Stock To Buy?

Among these funds, Arrowstreet Capital held the most valuable stake in Oxford Square Capital Corp. (NASDAQ:OXSQ), which was worth $4.1 million at the end of the third quarter. On the second spot was Selz Capital which amassed $1 million worth of shares. Two Sigma Advisors, Paloma Partners, and Intrepid Capital Management 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 Selz Capital allocated the biggest weight to Oxford Square Capital Corp. (NASDAQ:OXSQ), around 0.24% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to OXSQ.

Consequently, key hedge funds were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, created the most outsized position in Oxford Square Capital Corp. (NASDAQ:OXSQ). Paloma Partners had $0.7 million invested in the company at the end of the quarter. Mark Travis’s Intrepid Capital Management also initiated a $0.1 million position during the quarter. The only other fund with a brand new OXSQ position is Israel Englander’s Millennium Management.

Let’s check out hedge fund activity in other stocks similar to Oxford Square Capital Corp. (NASDAQ:OXSQ). We will take a look at Triple-S Management Corp.(NYSE:GTS), Gladstone Capital Corporation (NASDAQ:GLAD), Cresud S.A.C.I.F. y A. (NASDAQ:CRESY), and Ardelyx Inc (NASDAQ:ARDX). All of these stocks’ market caps are closest to OXSQ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GTS 18 88802 5
GLAD 5 4387 0
CRESY 7 12859 0
ARDX 14 80602 2
Average 11 46663 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $7 million in OXSQ’s case. Triple-S Management Corp.(NYSE:GTS) is the most popular stock in this table. On the other hand Gladstone Capital Corporation (NASDAQ:GLAD) is the least popular one with only 5 bullish hedge fund positions. Oxford Square Capital Corp. (NASDAQ:OXSQ) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OXSQ wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OXSQ investors were disappointed as the stock returned -13.7% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

Disclosure: None. This article was originally published at Insider Monkey.