Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Kimberly Clark Corporation (NYSE:KMB).
Kimberly Clark Corporation (NYSE:KMB) investors should be aware of a decrease in enthusiasm from smart money in recent months. KMB was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 42 hedge funds in our database with KMB holdings at the end of the previous quarter. Our calculations also showed that KMB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 41 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.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to go over the fresh hedge fund action encompassing Kimberly Clark Corporation (NYSE:KMB).
What have hedge funds been doing with Kimberly Clark Corporation (NYSE:KMB)?
At the end of the fourth quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KMB over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in Kimberly Clark Corporation (NYSE:KMB). AQR Capital Management has a $295.3 million position in the stock, comprising 0.3% of its 13F portfolio. On AQR Capital Management’s heels is Diamond Hill Capital, led by Ric Dillon, holding a $225.1 million position; 1.1% of its 13F portfolio is allocated to the company. Other peers that hold long positions consist of Phill Gross and Robert Atchinson’s Adage Capital Management, and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Diamond Hill Capital allocated the biggest weight to Kimberly Clark Corporation (NYSE:KMB), around 1.13% of its 13F portfolio. Holocene Advisors is also relatively very bullish on the stock, designating 1.12 percent of its 13F equity portfolio to KMB.
Since Kimberly Clark Corporation (NYSE:KMB) has experienced declining sentiment from the smart money, we can see that there is a sect of fund managers that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Aaron Cowen’s Suvretta Capital Management said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, totaling close to $154.8 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund dumped about $21.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Kimberly Clark Corporation (NYSE:KMB). These stocks are ING Groep N.V. (NYSE:ING), Metlife Inc (NYSE:MET), American Electric Power Company, Inc. (NYSE:AEP), and Emerson Electric Co. (NYSE:EMR). This group of stocks’ market values match KMB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ING | 14 | 635357 | 4 |
| MET | 38 | 2371511 | -1 |
| AEP | 34 | 1687802 | -1 |
| EMR | 41 | 1165094 | 2 |
| Average | 31.75 | 1464941 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $1465 million. That figure was $1059 million in KMB’s case. Emerson Electric Co. (NYSE:EMR) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 14 bullish hedge fund positions. Kimberly Clark Corporation (NYSE:KMB) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. Hedge funds were also right about betting on KMB as the stock returned -1.8% during the first quarter (through March 11th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
