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Hedge Funds Have Never Been This Bullish On Live Oak Bancshares Inc (LOB)

Reymerlyn Martin

How do we determine whether Live Oak Bancshares Inc (NASDAQ:LOB) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Live Oak Bancshares Inc (NASDAQ:LOB) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. Our calculations also showed that LOB isn't among the 30 most popular stocks among hedge funds.

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' 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.

Paul Marshall Marshall Wace

We're going to check out the new hedge fund action regarding Live Oak Bancshares Inc (NASDAQ:LOB).

What does the smart money think about Live Oak Bancshares Inc (NASDAQ:LOB)?

At Q4's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in LOB a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

LOB_may2019

The largest stake in Live Oak Bancshares Inc (NASDAQ:LOB) was held by Mendon Capital Advisors, which reported holding $15.5 million worth of stock at the end of December. It was followed by Millennium Management with a $4.3 million position. Other investors bullish on the company included Citadel Investment Group, Marshall Wace LLP, and Driehaus Capital.

As one would reasonably expect, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, initiated the biggest position in Live Oak Bancshares Inc (NASDAQ:LOB). Millennium Management had $4.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $1.9 million position during the quarter. The following funds were also among the new LOB investors: John Overdeck and David Siegel's Two Sigma Advisors, Andrew Feldstein and Stephen Siderow's Blue Mountain Capital, and Roger Ibbotson's Zebra Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Live Oak Bancshares Inc (NASDAQ:LOB) but similarly valued. We will take a look at US Concrete Inc (NASDAQ:USCR), Unisys Corporation (NYSE:UIS), El Pollo LoCo Holdings Inc (NASDAQ:LOCO), and Intellia Therapeutics, Inc. (NASDAQ:NTLA). This group of stocks' market valuations are similar to LOB's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position USCR,18,58528,-1 UIS,17,96581,3 LOCO,16,29208,2 NTLA,10,15724,0 Average,15.25,50010,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $30 million in LOB's case. US Concrete Inc (NASDAQ:USCR) is the most popular stock in this table. On the other hand Intellia Therapeutics, Inc. (NASDAQ:NTLA) is the least popular one with only 10 bullish hedge fund positions. Live Oak Bancshares Inc (NASDAQ:LOB) 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 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. Unfortunately LOB wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); LOB investors were disappointed as the stock returned 10.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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