Did Hedge Funds Make The Right Call On FS KKR Capital Corp. (FSK) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of FS KKR Capital Corp. (NASDAQ:FSK) based on that data and determine whether they were really smart about the stock.

FS KKR Capital Corp. (NASDAQ:FSK) has seen a decrease in support from the world’s most elite money managers lately. FSK was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. There were 28 hedge funds in our database with FSK positions at the end of the previous quarter. Our calculations also showed that FSK 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.

In the eyes of most investors, hedge funds are seen as underperforming, old financial tools of yesteryear. While there are more than 8000 funds in operation at the moment, Our researchers choose to focus on the elite of this club, about 850 funds. Most estimates calculate that this group of people preside over bulk of the smart money’s total asset base, and by following their first-class stock picks, Insider Monkey has brought to light a few investment strategies that have historically outpaced the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s review the recent hedge fund action encompassing FS KKR Capital Corp. (NASDAQ:FSK).

Hedge fund activity in FS KKR Capital Corp. (NASDAQ:FSK)

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FSK over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

The largest stake in FS KKR Capital Corp. (NASDAQ:FSK) was held by Beach Point Capital Management, which reported holding $54.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $7.6 million position. Other investors bullish on the company included Dorset Management, McKinley Capital Management, and Callodine Capital Management. In terms of the portfolio weights assigned to each position Beach Point Capital Management allocated the biggest weight to FS KKR Capital Corp. (NASDAQ:FSK), around 50.69% of its 13F portfolio. Almitas Capital is also relatively very bullish on the stock, dishing out 6.64 percent of its 13F equity portfolio to FSK.

Since FS KKR Capital Corp. (NASDAQ:FSK) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there were a few funds that slashed their full holdings heading into Q4. Interestingly, David Costen Haley’s HBK Investments sold off the largest position of all the hedgies monitored by Insider Monkey, comprising about $33.8 million in stock. Eric Schneider’s fund, OCO Capital Partners, also said goodbye to its stock, about $18.4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 9 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to FS KKR Capital Corp. (NASDAQ:FSK). These stocks are Cantel Medical Corp. (NYSE:CMD), Guangshen Railway Co. Ltd (NYSE:GSH), Horace Mann Educators Corporation (NYSE:HMN), and Tenet Healthcare Corp (NYSE:THC). This group of stocks’ market values are similar to FSK’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $85 million in FSK’s case. Tenet Healthcare Corp (NYSE:THC) is the most popular stock in this table. On the other hand Guangshen Railway Co. Ltd (NYSE:GSH) is the least popular one with only 2 bullish hedge fund positions. FS KKR Capital Corp. (NASDAQ:FSK) 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 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately FSK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FSK were disappointed as the stock returned -66.8% during the same time period 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 many of these stocks already outperformed the market so far this year.

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