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Owens Corning (OC): Hedge Funds De-risking

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Owens Corning (NYSE:OC).

Owens Corning (NYSE:OC) has seen a decrease in hedge fund sentiment in recent months. OC was in 30 hedge funds’ portfolios at the end of the first quarter of 2020. There were 47 hedge funds in our database with OC positions at the end of the previous quarter. Our calculations also showed that OC 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the 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 analyze the fresh hedge fund action surrounding Owens Corning (NYSE:OC).

What have hedge funds been doing with Owens Corning (NYSE:OC)?

Heading into the second quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -36% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in OC a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Owens Corning (NYSE:OC), with a stake worth $137 million reported as of the end of September. Trailing Citadel Investment Group was AQR Capital Management, which amassed a stake valued at $70.3 million. Adage Capital Management, Columbus Circle Investors, and GMT Capital 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 Lodge Hill Capital allocated the biggest weight to Owens Corning (NYSE:OC), around 5.18% of its 13F portfolio. Columbus Circle Investors is also relatively very bullish on the stock, earmarking 1.39 percent of its 13F equity portfolio to OC.

Since Owens Corning (NYSE:OC) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedge funds who were dropping their entire stakes last quarter. It’s worth mentioning that John Khoury’s Long Pond Capital cut the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $210.6 million in stock, and Josh Donfeld and David Rogers’s Castle Hook Partners was right behind this move, as the fund dropped about $57.6 million worth. These moves are interesting, as total hedge fund interest fell by 17 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Owens Corning (NYSE:OC) but similarly valued. These stocks are Kimco Realty Corp (NYSE:KIM), Arrow Electronics, Inc. (NYSE:ARW), Invesco Ltd. (NYSE:IVZ), and ICU Medical, Inc. (NASDAQ:ICUI). This group of stocks’ market valuations are similar to OC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KIM 22 55233 6
ARW 23 359067 -11
IVZ 26 114502 2
ICUI 25 376778 8
Average 24 226395 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $399 million in OC’s case. Invesco Ltd. (NYSE:IVZ) is the most popular stock in this table. On the other hand Kimco Realty Corp (NYSE:KIM) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Owens Corning (NYSE:OC) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on OC as the stock returned 35.3% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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