We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 fourth 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 years and analyze what the smart money thinks of Kohl’s Corporation (NYSE:KSS) based on that data.
Kohl’s Corporation (NYSE:KSS) has seen a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that KSS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the recent hedge fund action surrounding Kohl’s Corporation (NYSE:KSS).
Hedge fund activity in Kohl’s Corporation (NYSE:KSS)
At Q4’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in KSS a year ago. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Kohl’s Corporation (NYSE:KSS), with a stake worth $152.6 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $91.9 million. Balyasny Asset Management, D E Shaw, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Armistice Capital allocated the biggest weight to Kohl’s Corporation (NYSE:KSS), around 0.73% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, designating 0.32 percent of its 13F equity portfolio to KSS.
Since Kohl’s Corporation (NYSE:KSS) has witnessed falling interest from hedge fund managers, it’s safe to say that there exists a select few hedgies that elected to cut their positions entirely last quarter. At the top of the heap, Ray Dalio’s Bridgewater Associates sold off the largest position of all the hedgies tracked by Insider Monkey, valued at an estimated $32.5 million in stock, and Robert Pitts’s Steadfast Capital Management was right behind this move, as the fund dumped about $29.6 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Kohl’s Corporation (NYSE:KSS). These stocks are Xerox Corporation (NYSE:XRX), Ares Capital Corporation (NASDAQ:ARCC), Peloton Interactive, Inc. (NASDAQ:PTON), and Assurant, Inc. (NYSE:AIZ). This group of stocks’ market caps resemble KSS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XRX | 39 | 1458893 | 6 |
| ARCC | 22 | 262419 | -1 |
| PTON | 30 | 383046 | 3 |
| AIZ | 25 | 886201 | -5 |
| Average | 29 | 747640 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $748 million. That figure was $405 million in KSS’s case. Xerox Corporation (NYSE:XRX) is the most popular stock in this table. On the other hand Ares Capital Corporation (NASDAQ:ARCC) is the least popular one with only 22 bullish hedge fund positions. Kohl’s Corporation (NYSE:KSS) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately KSS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KSS investors were disappointed as the stock returned -61.3% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
