Were Hedge Funds Right About Piling Into Owens Corning (OC)?

“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Owens Corning (NYSE:OC).

Is Owens Corning (NYSE:OC) a buy here? The best stock pickers are betting on the stock. The number of bullish hedge fund bets increased by 8 lately. Our calculations also showed that OC isn’t among the 30 most popular stocks among hedge funds. OC was in 40 hedge funds’ portfolios at the end of December. There were 32 hedge funds in our database with OC holdings at the end of the previous quarter.

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 32 percentage points since May 2014 through March 12, 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.


Let’s review the recent hedge fund action regarding Owens Corning (NYSE:OC).

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

At Q4’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards OC over the last 14 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).


Among these funds, Adage Capital Management held the most valuable stake in Owens Corning (NYSE:OC), which was worth $173 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $113 million worth of shares. Moreover, D E Shaw, PAR Capital Management, and D1 Capital Partners were also bullish on Owens Corning (NYSE:OC), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key money managers were leading the bulls’ herd. D1 Capital Partners, managed by Daniel Sundheim, initiated the biggest position in Owens Corning (NYSE:OC). D1 Capital Partners had $60.1 million invested in the company at the end of the quarter. Lee Hicks and Jan Koerner’s Park Presidio Capital also made a $45.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Clint Murray’s Lodge Hill Capital, Matt Simon (Citadel)’s Ashler Capital, and Jonathan Kolatch’s Redwood Capital Management.

Let’s go over hedge fund activity in other stocks similar to Owens Corning (NYSE:OC). We will take a look at Zscaler, Inc. (NASDAQ:ZS), Toll Brothers Inc (NYSE:TOL), WPX Energy Inc (NYSE:WPX), and EPR Properties (NYSE:EPR). This group of stocks’ market valuations are closest to OC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZS 17 91542 -11
TOL 28 444730 -4
WPX 46 727535 -7
EPR 22 155570 9
Average 28.25 354844 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $355 million. That figure was $839 million in OC’s case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand Zscaler, Inc. (NASDAQ:ZS) is the least popular one with only 17 bullish hedge fund positions. Owens Corning (NYSE:OC) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on OC as the stock returned 24.7% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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