The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought OneMain Holdings Inc (NYSE:OMF) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Is OneMain Holdings Inc (NYSE:OMF) the right pick for your portfolio? The best stock pickers were taking a bullish view. The number of bullish hedge fund bets rose by 3 recently. OneMain Holdings Inc (NYSE:OMF) was in 37 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 39. 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we're going to take a peek at the new hedge fund action surrounding OneMain Holdings Inc (NYSE:OMF).
How are hedge funds trading OneMain Holdings Inc (NYSE:OMF)?
Heading into the third quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OMF over the last 20 quarters. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Basswood Capital, managed by Matthew Lindenbaum, holds the number one position in OneMain Holdings Inc (NYSE:OMF). Basswood Capital has a $57.7 million position in the stock, comprising 5.5% of its 13F portfolio. Sitting at the No. 2 spot is Miller Value Partners, managed by Bill Miller, which holds a $55.3 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Remaining peers that hold long positions consist of Phill Gross and Robert Atchinson's Adage Capital Management, Alex Lieblong's Key Colony Management and Peter Rathjens, Bruce Clarke and John Campbell's 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, setting aside 5.54 percent of its 13F equity portfolio to OMF.
Consequently, some big names were leading the bulls' herd. Brigade Capital, managed by Don Morgan, initiated the largest 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 brand new OMF positions are Stanley Druckenmiller's Duquesne Capital, Principal Global Investors's Columbus Circle Investors, and Brandon Haley's Holocene Advisors.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as OneMain Holdings Inc (NYSE:OMF) but similarly valued. These stocks are 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 values resemble OMF's market value.
[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]
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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on OMF as the stock returned 27.8% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
