There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Opus Bank (NASDAQ:OPB).
Is Opus Bank (NASDAQ:OPB) a buy here? The smart money is taking a pessimistic view. The number of long hedge fund bets dropped by 2 recently. Our calculations also showed that OPB isn’t among the 30 most popular stocks among hedge funds (see the video below). OPB was in 9 hedge funds’ portfolios at the end of the second quarter of 2019. There were 11 hedge funds in our database with OPB holdings at the end of the previous quarter.
Video: Click the image to 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the recent hedge fund action regarding Opus Bank (NASDAQ:OPB).
Hedge fund activity in Opus Bank (NASDAQ:OPB)
At Q2’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in OPB a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Opus Bank (NASDAQ:OPB) was held by Elliott Management, which reported holding $114.4 million worth of stock at the end of March. It was followed by Castine Capital Management with a $12.9 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and D E Shaw.
Since Opus Bank (NASDAQ:OPB) has experienced bearish sentiment from the smart money, logic holds that there was a specific group of hedgies that slashed their entire stakes heading into Q3. Interestingly, Jeffrey Hinkle’s Shoals Capital Management cut the largest position of all the hedgies watched by Insider Monkey, totaling about $7.9 million in stock, and Anton Schutz’s Mendon Capital Advisors was right behind this move, as the fund sold off about $3.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Opus Bank (NASDAQ:OPB) but similarly valued. These stocks are Omega Flex, Inc. (NASDAQ:OFLX), Community Healthcare Trust Inc (NYSE:CHCT), Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA), and INTL Fcstone Inc (NASDAQ:INTL). This group of stocks’ market caps match OPB’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 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $138 million in OPB’s case. INTL Fcstone Inc (NASDAQ:INTL) is the most popular stock in this table. On the other hand Omega Flex, Inc. (NASDAQ:OFLX) is the least popular one with only 3 bullish hedge fund positions. Opus Bank (NASDAQ:OPB) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on OPB, though not to the same extent, as the stock returned 3.7% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.