We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Omega Healthcare Investors Inc (NYSE:OHI).
Hedge fund interest in Omega Healthcare Investors Inc (NYSE:OHI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare OHI to other stocks including TIM Participacoes SA (NYSE:TSU), Gaming and Leisure Properties Inc (NASDAQ:GLPI), and ICON Public Limited Company (NASDAQ:ICLR) to get a better sense of its popularity.
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
[caption id="attachment_373490" align="aligncenter" width="399"] Wall Street Bull[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to analyze the recent hedge fund action regarding Omega Healthcare Investors Inc (NYSE:OHI).
Hedge fund activity in Omega Healthcare Investors Inc (NYSE:OHI)
Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in OHI a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Omega Healthcare Investors Inc (NYSE:OHI), which was worth $90 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $24.2 million worth of shares. Citadel Investment Group, Citadel Investment Group, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Eversept Partners allocated the biggest weight to Omega Healthcare Investors Inc (NYSE:OHI), around 0.59% of its 13F portfolio. Cinctive Capital Management is also relatively very bullish on the stock, designating 0.5 percent of its 13F equity portfolio to OHI.
Since Omega Healthcare Investors Inc (NYSE:OHI) has faced a decline in interest from hedge fund managers, we can see that there was a specific group of hedgies who sold off their full holdings last quarter. At the top of the heap, John Khoury's Long Pond Capital sold off the largest investment of the 750 funds tracked by Insider Monkey, comprising about $13.8 million in stock, and Jeffrey Talpins's Element Capital Management was right behind this move, as the fund sold off about $5.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Omega Healthcare Investors Inc (NYSE:OHI). These stocks are TIM Participacoes SA (NYSE:TSU), Gaming and Leisure Properties Inc (NASDAQ:GLPI), ICON Public Limited Company (NASDAQ:ICLR), and Hyatt Hotels Corporation (NYSE:H). This group of stocks' market values are similar to OHI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSU,11,351539,-3 GLPI,29,851239,-6 ICLR,19,646835,-5 H,27,1152600,-4 Average,21.5,750553,-4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $751 million. That figure was $147 million in OHI's case. Gaming and Leisure Properties Inc (NASDAQ:GLPI) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 11 bullish hedge fund positions. Omega Healthcare Investors Inc (NYSE:OHI) 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. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately OHI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OHI investors were disappointed as the stock returned -54.4% during the same time period 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.