U.S. Markets close in 1 hr 15 mins

How Did Omnicom Group Inc. (OMC) Compare Against Hedge Fund Darlings in 2019?

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds' top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Omnicom Group Inc. (NYSE:OMC).

Omnicom Group Inc. (NYSE:OMC) was in 24 hedge funds' portfolios at the end of September. OMC has experienced an increase in support from the world's most elite money managers recently. There were 23 hedge funds in our database with OMC holdings 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 Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.

[caption id="attachment_731890" align="aligncenter" width="600"] John Rogers of Ariel Investments[/caption]

John Rogers Ariel Investments

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let's review the new hedge fund action surrounding Omnicom Group Inc. (NYSE:OMC).

How have hedgies been trading Omnicom Group Inc. (NYSE:OMC)?

At Q3's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in OMC a year ago. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena's Pzena Investment Management has the biggest position in Omnicom Group Inc. (NYSE:OMC), worth close to $204.2 million, corresponding to 1.1% of its total 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $67.6 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism include John W. Rogers's Ariel Investments, John Overdeck and David Siegel's Two Sigma Advisors and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to Omnicom Group Inc. (NYSE:OMC), around 1.11% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, setting aside 0.86 percent of its 13F equity portfolio to OMC.

Consequently, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the largest position in Omnicom Group Inc. (NYSE:OMC). Citadel Investment Group had $27.6 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $5.8 million position during the quarter. The other funds with new positions in the stock are David Costen Haley's HBK Investments, Paul Marshall and Ian Wace's Marshall Wace, and Donald Sussman's Paloma Partners.

Let's also examine hedge fund activity in other stocks similar to Omnicom Group Inc. (NYSE:OMC). We will take a look at Arch Capital Group Ltd. (NASDAQ:ACGL), Equifax Inc. (NYSE:EFX), DISH Network Corp. (NASDAQ:DISH), and HEICO Corporation (NYSE:HEI). This group of stocks' market caps are similar to OMC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACGL,21,1306954,-2 EFX,26,1728610,-8 DISH,36,1531248,4 HEI,42,1148598,7 Average,31.25,1428853,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $1429 million. That figure was $479 million in OMC's case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand Arch Capital Group Ltd. (NASDAQ:ACGL) is the least popular one with only 21 bullish hedge fund positions. Omnicom Group Inc. (NYSE:OMC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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. Unfortunately OMC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OMC investors were disappointed as the stock returned 14.4% in 2019 and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

Related Content