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Hedge Fund Favorites vs. Oracle Corporation (ORCL) In 2019

Reymerlyn Martin

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Oracle Corporation (NYSE:ORCL).

Is Oracle Corporation (NYSE:ORCL) a buy here? The best stock pickers are getting less bullish. The number of long hedge fund positions went down by 11 in recent months. Our calculations also showed that ORCL 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).

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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_30647" align="aligncenter" width="592"] Boykin Curry of Eagle Capital[/caption]

Boykin Curry EAGLE CAPITAL MANAGEMENT

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 and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we're going to view the new hedge fund action encompassing Oracle Corporation (NYSE:ORCL).

How are hedge funds trading Oracle Corporation (NYSE:ORCL)?

At the end of the third quarter, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ORCL over the last 17 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the most valuable position in Oracle Corporation (NYSE:ORCL). Fisher Asset Management has a $885.6 million position in the stock, comprising 1% of its 13F portfolio. The second largest stake is held by Boykin Curry of Eagle Capital Management, with a $869.1 million position; the fund has 3.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Cliff Asness's AQR Capital Management, Donald Yacktman's Yacktman Asset Management and Richard S. Pzena's Pzena Investment Management. In terms of the portfolio weights assigned to each position Yacktman Asset Management allocated the biggest weight to Oracle Corporation (NYSE:ORCL), around 5.43% of its 13F portfolio. Bodenholm Capital is also relatively very bullish on the stock, earmarking 5.19 percent of its 13F equity portfolio to ORCL.

Since Oracle Corporation (NYSE:ORCL) has witnessed declining sentiment from hedge fund managers, it's safe to say that there were a few money managers that elected to cut their full holdings by the end of the third quarter. Intriguingly, Renaissance Technologies cut the largest stake of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $169.2 million in stock. Jeffrey Talpins's fund, Element Capital Management, also dumped its stock, about $57.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 11 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Oracle Corporation (NYSE:ORCL) but similarly valued. These stocks are China Mobile Limited (NYSE:CHL), McDonald's Corporation (NYSE:MCD), The Unilever Group (NYSE:UL), and The Unilever Group (NYSE:UN). This group of stocks' market values are closest to ORCL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHL,12,386022,-1 MCD,49,2075982,-3 UL,14,337374,4 UN,15,1157802,-1 Average,22.5,989295,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $989 million. That figure was $4361 million in ORCL's case. McDonald's Corporation (NYSE:MCD) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Oracle Corporation (NYSE:ORCL) is more popular among hedge funds. 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 ORCL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ORCL were disappointed as the stock returned 19.3% 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 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.

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