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Were Hedge Funds Right About Dumping Oceaneering International, Inc. (OII)?

Nina Todic

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Oceaneering International, Inc. (NYSE:OII) and see how the stock is affected by the recent hedge fund activity.

Oceaneering International, Inc. (NYSE:OII) investors should pay attention to a decrease in hedge fund interest recently. OII was in 15 hedge funds' portfolios at the end of June. There were 21 hedge funds in our database with OII holdings at the end of the previous quarter. Our calculations also showed that OII 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.

5 Most Popular Stocks Among Hedge Funds

Today there are a multitude of metrics market participants use to appraise stocks. A couple of the most innovative metrics are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the best money managers can outperform the broader indices by a superb amount (see the details here).

AQR CAPITAL MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to check out the latest hedge fund action surrounding Oceaneering International, Inc. (NYSE:OII).

What have hedge funds been doing with Oceaneering International, Inc. (NYSE:OII)?

Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards OII over the last 16 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

No of Hedge Funds with OII Positions

The largest stake in Oceaneering International, Inc. (NYSE:OII) was held by Fisher Asset Management, which reported holding $73.3 million worth of stock at the end of March. It was followed by Millennium Management with a $72.6 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and D E Shaw.

Seeing as Oceaneering International, Inc. (NYSE:OII) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of funds who were dropping their entire stakes by the end of the second quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest investment of the "upper crust" of funds followed by Insider Monkey, worth close to $11.7 million in stock. Noam Gottesman's fund, GLG Partners, also dropped its stock, about $0.9 million worth. These moves are important to note, as total hedge fund interest was cut by 6 funds by the end of the second quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Oceaneering International, Inc. (NYSE:OII) but similarly valued. These stocks are Casella Waste Systems Inc. (NASDAQ:CWST), The Cheesecake Factory Incorporated (NASDAQ:CAKE), Lattice Semiconductor Corporation (NASDAQ:LSCC), and NMI Holdings Inc (NASDAQ:NMIH). This group of stocks' market caps are similar to OII's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CWST,12,174012,-2 CAKE,25,192053,0 LSCC,20,240193,-5 NMIH,19,230398,4 Average,19,209164,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $209 million. That figure was $231 million in OII's case. The Cheesecake Factory Incorporated (NASDAQ:CAKE) is the most popular stock in this table. On the other hand Casella Waste Systems Inc. (NASDAQ:CWST) is the least popular one with only 12 bullish hedge fund positions. Oceaneering International, Inc. (NYSE:OII) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately OII wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OII investors were disappointed as the stock returned -33.5% 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 in 2019.

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

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