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OFS Capital Corp (OFS): Are Hedge Funds Right About This Stock?

In this article you are going to find out whether hedge funds think OFS Capital Corp (NASDAQ:OFS) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

OFS Capital Corp (NASDAQ:OFS) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that OFS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the 21st century investor’s toolkit there are a lot of methods shareholders employ to evaluate their stock investments. A duo of the best methods are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the elite money managers can outpace the S&P 500 by a superb amount (see the details here).

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a glance at the key hedge fund action surrounding OFS Capital Corp (NASDAQ:OFS).

How are hedge funds trading OFS Capital Corp (NASDAQ:OFS)?

At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards OFS over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, McKinley Capital Management held the most valuable stake in OFS Capital Corp (NASDAQ:OFS), which was worth $0.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $0.2 million worth of shares. Citadel Investment Group was 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 McKinley Capital Management allocated the biggest weight to OFS Capital Corp (NASDAQ:OFS), around 0.03% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, setting aside 0.0006 percent of its 13F equity portfolio to OFS.

Consequently, key money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, established the most outsized position in OFS Capital Corp (NASDAQ:OFS). Citadel Investment Group had $0.1 million invested in the company at the end of the quarter.

Let’s now take a look at hedge fund activity in other stocks similar to OFS Capital Corp (NASDAQ:OFS). These stocks are Assertio Therapeutics, Inc. (NASDAQ:ASRT), Cypress Environmental Partners, L.P. (NYSE:CELP), Lantronix Inc (NASDAQ:LTRX), and Innovative Solutions & Support Inc (NASDAQ:ISSC). This group of stocks’ market caps are closest to OFS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ASRT 13 15168 -1
CELP 1 246 0
LTRX 2 2266 0
ISSC 3 2279 0
Average 4.75 4990 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $1 million in OFS’s case. Assertio Therapeutics, Inc. (NASDAQ:ASRT) is the most popular stock in this table. On the other hand Cypress Environmental Partners, L.P. (NYSE:CELP) is the least popular one with only 1 bullish hedge fund positions. OFS Capital Corp (NASDAQ:OFS) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately OFS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OFS investors were disappointed as the stock returned 12% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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