Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Omega Flex, Inc. (NASDAQ:OFLX).
Hedge fund interest in Omega Flex, Inc. (NASDAQ:OFLX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that OFLX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as NetScout Systems, Inc. (NASDAQ:NTCT), Washington Federal Inc. (NASDAQ:WAFD), and AssetMark Financial Holdings, Inc. (NYSE:AMK) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s view the new hedge fund action encompassing Omega Flex, Inc. (NASDAQ:OFLX).
What does smart money think about Omega Flex, Inc. (NASDAQ:OFLX)?
At third quarter’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in OFLX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the biggest position in Omega Flex, Inc. (NASDAQ:OFLX), worth close to $4.9 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $0.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish comprise Roger Ibbotson’s Zebra Capital Management, and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Omega Flex, Inc. (NASDAQ:OFLX), around 0.56% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.0049 percent of its 13F equity portfolio to OFLX.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was D E Shaw).
Let’s now review hedge fund activity in other stocks similar to Omega Flex, Inc. (NASDAQ:OFLX). These stocks are NetScout Systems, Inc. (NASDAQ:NTCT), Washington Federal Inc. (NASDAQ:WAFD), AssetMark Financial Holdings, Inc. (NYSE:AMK), Helmerich & Payne, Inc. (NYSE:HP), Spirit Airlines Incorporated (NYSE:SAVE), Texas Capital Bancshares Inc (NASDAQ:TCBI), and Paramount Group Inc (NYSE:PGRE). This group of stocks’ market caps are similar to OFLX’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 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $6 million in OFLX’s case. Helmerich & Payne, Inc. (NYSE:HP) is the most popular stock in this table. On the other hand AssetMark Financial Holdings, Inc. (NYSE:AMK) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Omega Flex, Inc. (NASDAQ:OFLX) is even less popular than AMK. Our overall hedge fund sentiment score for OFLX is 25. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards OFLX. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th but managed to beat the market again by 16.1 percentage points. Unfortunately OFLX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); OFLX investors were disappointed as the stock returned -6.5% since the end of the third quarter (through 11/27) 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 most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.