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Were Hedge Funds Right About Flocking Into Bank OZK (OZK) ?

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Bank OZK (NASDAQ:OZK).

Is Bank OZK (NASDAQ:OZK) the right investment to pursue these days? Investors who are in the know are getting more optimistic. The number of long hedge fund bets inched up by 8 in recent months. Our calculations also showed that OZK isn’t among the 30 most popular stocks among hedge funds.

According to most traders, hedge funds are seen as underperforming, old investment tools of years past. While there are over 8000 funds with their doors open at present, We hone in on the upper echelon of this group, about 750 funds. It is estimated that this group of investors preside over bulk of all hedge funds’ total asset base, and by following their inimitable picks, Insider Monkey has determined a number of investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Dmitry Balyasny

We’re going to take a peek at the key hedge fund action encompassing Bank OZK (NASDAQ:OZK).

What does the smart money think about Bank OZK (NASDAQ:OZK)?

Heading into the first quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 80% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OZK over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

OZK_apr2019

Among these funds, Diamond Hill Capital held the most valuable stake in Bank OZK (NASDAQ:OZK), which was worth $150.7 million at the end of the third quarter. On the second spot was Giverny Capital which amassed $15.3 million worth of shares. Moreover, Millennium Management, Nantahala Capital Management, and Renaissance Technologies were also bullish on Bank OZK (NASDAQ:OZK), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key money managers were breaking ground themselves. Giverny Capital, managed by Francois Rochon, assembled the most outsized position in Bank OZK (NASDAQ:OZK). Giverny Capital had $15.3 million invested in the company at the end of the quarter. Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management also initiated a $11.4 million position during the quarter. The following funds were also among the new OZK investors: Jim Simons’s Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Bank OZK (NASDAQ:OZK) but similarly valued. These stocks are Physicians Realty Trust (NYSE:DOC), Valero Energy Partners LP (NYSE:VLP), Extended Stay America Inc (NASDAQ:STAY), and Nomad Foods Limited (NYSE:NOMD). This group of stocks’ market caps resemble OZK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOC 12 93423 3
VLP 7 87725 4
STAY 32 404562 2
NOMD 31 251607 -3
Average 20.5 209329 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $209 million. That figure was $217 million in OZK’s case. Extended Stay America Inc (NASDAQ:STAY) is the most popular stock in this table. On the other hand Valero Energy Partners LP (NYSE:VLP) is the least popular one with only 7 bullish hedge fund positions. Bank OZK (NASDAQ:OZK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on OZK as the stock returned 39.7% and outperformed the market by an even larger margin.

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

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