Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Owl Rock Capital Corporation (NYSE:ORCC).
Owl Rock Capital Corporation (NYSE:ORCC) investors should be aware of an increase in hedge fund interest lately. ORCC was in 6 hedge funds' portfolios at the end of the third quarter of 2019. There were 0 hedge funds in our database with ORCC positions at the end of the previous quarter. Our calculations also showed that ORCC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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 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_25251" align="alignnone" width="600"] George Soros of Soros Fund Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's check out the recent hedge fund action surrounding Owl Rock Capital Corporation (NYSE:ORCC).
Hedge fund activity in Owl Rock Capital Corporation (NYSE:ORCC)
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6 from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ORCC over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alexander West's Blue Pool Capital has the biggest position in Owl Rock Capital Corporation (NYSE:ORCC), worth close to $107.5 million, corresponding to 42.5% of its total 13F portfolio. Coming in second is Soros Fund Management, managed by George Soros, which holds a $21.7 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise Israel Englander's Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Anand Parekh's Alyeska Investment Group. In terms of the portfolio weights assigned to each position Blue Pool Capital allocated the biggest weight to Owl Rock Capital Corporation (NYSE:ORCC), around 42.5% of its 13F portfolio. Soros Fund Management is also relatively very bullish on the stock, designating 0.6 percent of its 13F equity portfolio to ORCC.
Now, some big names were leading the bulls' herd. Blue Pool Capital, managed by Alexander West, created the largest position in Owl Rock Capital Corporation (NYSE:ORCC). Blue Pool Capital had $107.5 million invested in the company at the end of the quarter. George Soros's Soros Fund Management also initiated a $21.7 million position during the quarter. The following funds were also among the new ORCC investors: Israel Englander's Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Anand Parekh's Alyeska Investment Group.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Owl Rock Capital Corporation (NYSE:ORCC) but similarly valued. These stocks are Brixmor Property Group Inc (NYSE:BRX), Healthcare Trust Of America Inc (NYSE:HTA), Zscaler, Inc. (NASDAQ:ZS), and Ares Management L.P. (NYSE:ARES). This group of stocks' market caps are similar to ORCC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BRX,16,118738,1 HTA,18,270702,5 ZS,20,133861,-5 ARES,17,222255,7 Average,17.75,186389,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $142 million in ORCC's case. Zscaler, Inc. (NASDAQ:ZS) is the most popular stock in this table. On the other hand Brixmor Property Group Inc (NYSE:BRX) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Owl Rock Capital Corporation (NYSE:ORCC) is even less popular than BRX. Hedge funds clearly dropped the ball on ORCC as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ORCC as the stock returned 14.8% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.