How do we determine whether Oaktree Specialty Lending Corporation (NASDAQ:OCSL) 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.
Oaktree Specialty Lending Corporation (NASDAQ:OCSL) was in 19 hedge funds' portfolios at the end of the first quarter of 2019. OCSL investors should pay attention to an increase in support from the world's most elite money managers recently. There were 12 hedge funds in our database with OCSL positions at the end of the previous quarter. Our calculations also showed that ocsl isn't among the 30 most popular stocks among hedge funds.
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 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 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 our short portfolio.
Let's view the fresh hedge fund action regarding Oaktree Specialty Lending Corporation (NASDAQ:OCSL).
What does the smart money think about Oaktree Specialty Lending Corporation (NASDAQ:OCSL)?
At Q1's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 58% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in OCSL over the last 15 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Oaktree Specialty Lending Corporation (NASDAQ:OCSL) was held by Springhouse Capital Management, which reported holding $35.5 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $10 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and D E Shaw.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most outsized position in Oaktree Specialty Lending Corporation (NASDAQ:OCSL). Marshall Wace LLP had $1.1 million invested in the company at the end of the quarter. William Michaelcheck's Mariner Investment Group also initiated a $0.3 million position during the quarter. The other funds with brand new OCSL positions are Matthew Hulsizer's PEAK6 Capital Management, Peter Muller's PDT Partners, and Jeffrey Talpins's Element Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Oaktree Specialty Lending Corporation (NASDAQ:OCSL) but similarly valued. These stocks are Central Securities Corporation (NYSE:CET), Community Trust Bancorp, Inc. (NASDAQ:CTBI), Conn's, Inc. (NASDAQ:CONN), and Superior Energy Services, Inc. (NYSE:SPN). All of these stocks' market caps are similar to OCSL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CET,3,10638,1 CTBI,8,20202,1 CONN,16,125956,2 SPN,25,112729,5 Average,13,67381,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $69 million in OCSL's case. Superior Energy Services, Inc. (NYSE:SPN) is the most popular stock in this table. On the other hand Central Securities Corporation (NYSE:CET) is the least popular one with only 3 bullish hedge fund positions. Oaktree Specialty Lending Corporation (NASDAQ:OCSL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on OCSL as the stock returned 3.5% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.