The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Oaktree Specialty Lending Corporation (NASDAQ:OCSL) from the perspective of those elite funds.
Oaktree Specialty Lending Corporation (NASDAQ:OCSL) shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. OCSL was in 17 hedge funds' portfolios at the end of June. There were 19 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 (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' 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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to go over the new hedge fund action surrounding Oaktree Specialty Lending Corporation (NASDAQ:OCSL).
How have hedgies been trading Oaktree Specialty Lending Corporation (NASDAQ:OCSL)?
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in OCSL 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, Springhouse Capital Management held the most valuable stake in Oaktree Specialty Lending Corporation (NASDAQ:OCSL), which was worth $37.4 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $11.9 million worth of shares. Moreover, Millennium Management, Citadel Investment Group, and D E Shaw were also bullish on Oaktree Specialty Lending Corporation (NASDAQ:OCSL), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Oaktree Specialty Lending Corporation (NASDAQ:OCSL) has faced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedgies who sold off their entire stakes in the second quarter. Interestingly, William Michaelcheck's Mariner Investment Group cut the biggest investment of all the hedgies tracked by Insider Monkey, valued at close to $0.3 million in call options. Matthew Hulsizer's fund, PEAK6 Capital Management, also sold off its call options, about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to Oaktree Specialty Lending Corporation (NASDAQ:OCSL). These stocks are Northern Oil & Gas, Inc. (NYSEAMEX:NOG), Genfit SA (NASDAQ:GNFT), Univest Corp. of PA (NASDAQ:UVSP), and Federal Agricultural Mortgage Corp. (NYSE:AGM). This group of stocks' market values resemble OCSL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOG,19,87321,-1 GNFT,6,46248,-4 UVSP,9,42023,0 AGM,7,29670,-2 Average,10.25,51316,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $80 million in OCSL's case. Northern Oil & Gas, Inc. (NYSEAMEX:NOG) is the most popular stock in this table. On the other hand Genfit SA (NASDAQ:GNFT) is the least popular one with only 6 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. 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 OCSL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OCSL were disappointed as the stock returned -2.7% 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.