Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Ocwen Financial Corporation (NYSE:OCN) from the perspective of those elite funds.
Ocwen Financial Corporation (NYSE:OCN) was in 10 hedge funds' portfolios at the end of June. OCN has experienced a decrease in hedge fund sentiment in recent months. There were 15 hedge funds in our database with OCN positions at the end of the previous quarter. Our calculations also showed that OCN isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the key hedge fund action surrounding Ocwen Financial Corporation (NYSE:OCN).
How are hedge funds trading Ocwen Financial Corporation (NYSE:OCN)?
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards OCN over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Ocwen Financial Corporation (NYSE:OCN) was held by Omega Advisors, which reported holding $20.1 million worth of stock at the end of March. It was followed by GLG Partners with a $6 million position. Other investors bullish on the company included CQS Cayman LP, D E Shaw, and Marshall Wace LLP.
Due to the fact that Ocwen Financial Corporation (NYSE:OCN) has experienced a decline in interest from hedge fund managers, it's safe to say that there is a sect of money managers that decided to sell off their positions entirely by the end of the second quarter. Intriguingly, Boaz Weinstein's Saba Capital sold off the biggest stake of the "upper crust" of funds monitored by Insider Monkey, comprising an estimated $0.6 million in stock. Ken Griffin's fund, Citadel Investment Group, also sold off its stock, about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 5 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks similar to Ocwen Financial Corporation (NYSE:OCN). We will take a look at ACM Research, Inc. (NASDAQ:ACMR), OptiNose, Inc. (NASDAQ:OPTN), North American Construction Group Ltd. (NYSE:NOA), and L.B. Foster Company (NASDAQ:FSTR). This group of stocks' market caps are closest to OCN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACMR,7,6161,5 OPTN,6,7127,3 NOA,9,46970,1 FSTR,15,68558,1 Average,9.25,32204,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $33 million in OCN's case. L.B. Foster Company (NASDAQ:FSTR) is the most popular stock in this table. On the other hand OptiNose, Inc. (NASDAQ:OPTN) is the least popular one with only 6 bullish hedge fund positions. Ocwen Financial Corporation (NYSE:OCN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately OCN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OCN were disappointed as the stock returned -9.2% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.