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Were Hedge Funds Right About Dumping Omnicom Group Inc. (OMC)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Omnicom Group Inc. (NYSE:OMC) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Omnicom Group Inc. (NYSE:OMC) was in 22 hedge funds’ portfolios at the end of December. OMC investors should be aware of a decrease in activity from the world’s largest hedge funds of late. There were 27 hedge funds in our database with OMC positions at the end of the previous quarter. Our calculations also showed that OMC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).

To most investors, hedge funds are viewed as slow, outdated financial vehicles of yesteryear. While there are greater than 8000 funds trading at present, We look at the top tier of this club, about 850 funds. These money managers oversee the lion’s share of all hedge funds’ total capital, and by following their highest performing investments, Insider Monkey has unearthed several investment strategies that have historically outpaced the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 peek at the fresh hedge fund action surrounding Omnicom Group Inc. (NYSE:OMC).

How are hedge funds trading Omnicom Group Inc. (NYSE:OMC)?

At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OMC over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is OMC A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the biggest position in Omnicom Group Inc. (NYSE:OMC). Pzena Investment Management has a $194.4 million position in the stock, comprising 0.9% of its 13F portfolio. On Pzena Investment Management’s heels is AQR Capital Management, led by Cliff Asness, holding a $65.1 million position; 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish contain John W. Rogers’s Ariel Investments, Noam Gottesman’s GLG Partners and Renaissance Technologies. In terms of the portfolio weights assigned to each position L2 Asset Management allocated the biggest weight to Omnicom Group Inc. (NYSE:OMC), around 2.46% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 0.91 percent of its 13F equity portfolio to OMC.

Since Omnicom Group Inc. (NYSE:OMC) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of fund managers that slashed their full holdings by the end of the third quarter. At the top of the heap, Paul Tudor Jones’s Tudor Investment Corp cut the biggest investment of all the hedgies watched by Insider Monkey, totaling about $5.8 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $4.2 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 5 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Omnicom Group Inc. (NYSE:OMC) but similarly valued. We will take a look at Concho Resources Inc. (NYSE:CXO), Amcor plc (NYSE:AMCR), Nasdaq, Inc. (NASDAQ:NDAQ), and Shinhan Financial Group Co., Ltd. (NYSE:SHG). This group of stocks’ market valuations are similar to OMC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CXO 39 763574 9
AMCR 10 48071 -7
NDAQ 25 181346 0
SHG 3 8979 -2
Average 19.25 250493 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $481 million in OMC’s case. Concho Resources Inc. (NYSE:CXO) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 3 bullish hedge fund positions. Omnicom Group Inc. (NYSE:OMC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately OMC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OMC were disappointed as the stock returned -28.7% during the same time period 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 many of these stocks already outperformed the market so far this year.

5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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