At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards On Deck Capital Inc (NYSE:ONDK).
Is On Deck Capital Inc (NYSE:ONDK) going to take off soon? Money managers are becoming less hopeful. The number of long hedge fund positions dropped by 2 lately. Our calculations also showed that ONDK isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
To the average investor there are tons of signals market participants employ to size up their stock investments. A pair of the most under-the-radar signals are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can outpace the market by a significant margin (see the details here).
[caption id="attachment_845793" align="aligncenter" width="399"] Peter Rathjens of Arrowstreet Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 largest producers of bauxite to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a gander at the recent hedge fund action encompassing On Deck Capital Inc (NYSE:ONDK).
What does smart money think about On Deck Capital Inc (NYSE:ONDK)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ONDK over the last 18 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, holds the largest position in On Deck Capital Inc (NYSE:ONDK). Nantahala Capital Management has a $8.6 million position in the stock, comprising 0.3% of its 13F portfolio. On Nantahala Capital Management's heels of Renaissance Technologies, with a $6.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers that are bullish comprise Emanuel J. Friedman's EJF Capital, Ari Zweiman's 683 Capital Partners and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Voce Capital allocated the biggest weight to On Deck Capital Inc (NYSE:ONDK), around 1.58% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, earmarking 1.24 percent of its 13F equity portfolio to ONDK.
Seeing as On Deck Capital Inc (NYSE:ONDK) has experienced bearish sentiment from hedge fund managers, logic holds that there were a few fund managers that slashed their positions entirely by the end of the first quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP sold off the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising close to $0.4 million in stock, and Thomas Bailard's Bailard Inc was right behind this move, as the fund dropped about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the first quarter.
Let's also examine hedge fund activity in other stocks similar to On Deck Capital Inc (NYSE:ONDK). These stocks are Auryn Resources Inc. (NYSE:AUG), Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE), TELA Bio, Inc. (NASDAQ:TELA), and Valaris Plc (NYSE:VAL). This group of stocks' market valuations resemble ONDK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AUG,1,85,-2 ZYNE,7,3948,1 TELA,8,27380,0 VAL,14,37814,-6 Average,7.5,17307,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $34 million in ONDK's case. Valaris Plc (NYSE:VAL) is the most popular stock in this table. On the other hand Auryn Resources Inc. (NYSE:AUG) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks On Deck Capital Inc (NYSE:ONDK) is more popular among hedge funds. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately ONDK wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ONDK were disappointed as the stock returned -50.3% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.