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Was The Smart Money Right About OneMain Holdings Inc (OMF)?

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·6 min read
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In this article you are going to find out whether hedge funds think OneMain Holdings Inc (NYSE:OMF) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

OneMain Holdings Inc (NYSE:OMF) was in 37 hedge funds' portfolios at the end of June. The all time high for this statistics is 39. OMF shareholders have witnessed an increase in hedge fund interest of late. There were 34 hedge funds in our database with OMF holdings at the end of March. Our calculations also showed that OMF isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Matthew Lindenbaum Basswood Capital
Matthew Lindenbaum Basswood Capital

Matthew Lindenbaum of Basswood Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a look at the recent hedge fund action regarding OneMain Holdings Inc (NYSE:OMF).

How are hedge funds trading OneMain Holdings Inc (NYSE:OMF)?

At the end of the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the first quarter of 2020. On the other hand, there were a total of 27 hedge funds with a bullish position in OMF a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in OneMain Holdings Inc (NYSE:OMF) was held by Basswood Capital, which reported holding $57.7 million worth of stock at the end of June. It was followed by Miller Value Partners with a $55.3 million position. Other investors bullish on the company included Adage Capital Management, Key Colony Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Key Colony Management allocated the biggest weight to OneMain Holdings Inc (NYSE:OMF), around 92.24% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, earmarking 5.54 percent of its 13F equity portfolio to OMF.

Now, specific money managers were leading the bulls' herd. Brigade Capital, managed by Don Morgan, assembled the biggest position in OneMain Holdings Inc (NYSE:OMF). Brigade Capital had $11.2 million invested in the company at the end of the quarter. George Soros's Soros Fund Management also made a $8.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Stanley Druckenmiller's Duquesne Capital, Principal Global Investors's Columbus Circle Investors, and Brandon Haley's Holocene Advisors.

Let's check out hedge fund activity in other stocks similar to OneMain Holdings Inc (NYSE:OMF). We will take a look at Medpace Holdings, Inc. (NASDAQ:MEDP), Murphy USA Inc. (NYSE:MUSA), AutoNation, Inc. (NYSE:AN), Kohl's Corporation (NYSE:KSS), Brooks Automation, Inc. (NASDAQ:BRKS), AVITA Therapeutics, Inc. (NASDAQ:RCEL), and Xerox Holdings Corporation (NYSE:XRX). This group of stocks' market caps are closest to OMF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MEDP,22,220276,5 MUSA,27,301412,3 AN,29,293932,2 KSS,42,337352,16 BRKS,15,163794,-3 RCEL,2,30930,-1 XRX,35,679082,-6 Average,24.6,289540,2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.6 hedge funds with bullish positions and the average amount invested in these stocks was $290 million. That figure was $343 million in OMF's case. Kohl's Corporation (NYSE:KSS) is the most popular stock in this table. On the other hand AVITA Therapeutics, Inc. (NASDAQ:RCEL) is the least popular one with only 2 bullish hedge fund positions. OneMain Holdings Inc (NYSE:OMF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OMF is 80.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on OMF as the stock returned 53.3% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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