Hedge Fund Sentiment Is Stagnant On KNOT Offshore Partners LP (KNOP)

Is KNOT Offshore Partners LP (NYSE:KNOP) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Hedge fund interest in KNOT Offshore Partners LP (NYSE:KNOP) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that KNOP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Poseida Therapeutics, Inc. (NASDAQ:PSTX), Gatos Silver, Inc. (NYSE:GATO), and Solid Biosciences Inc. (NASDAQ:SLDB) to gather more data points.

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 115 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.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $27 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a look at the latest hedge fund action encompassing KNOT Offshore Partners LP (NYSE:KNOP).

Do Hedge Funds Think KNOP Is A Good Stock To Buy Now?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in KNOP a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the most valuable position in KNOT Offshore Partners LP (NYSE:KNOP). Renaissance Technologies has a $21.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $4.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism comprise Ken Griffin’s Citadel Investment Group, McKinley Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to KNOT Offshore Partners LP (NYSE:KNOP), around 0.07% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to KNOP.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as KNOT Offshore Partners LP (NYSE:KNOP) but similarly valued. These stocks are Poseida Therapeutics, Inc. (NASDAQ:PSTX), Gatos Silver, Inc. (NYSE:GATO), Solid Biosciences Inc. (NASDAQ:SLDB), Gilat Satellite Networks Ltd. (NASDAQ:GILT), Precision BioSciences, Inc. (NASDAQ:DTIL), Relmada Therapeutics, Inc. (NASDAQ:RLMD), and AnaptysBio, Inc. (NASDAQ:ANAB). This group of stocks’ market values are closest to KNOP’s market value.

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As you can see these stocks had an average of 12.6 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $29 million in KNOP’s case. Solid Biosciences Inc. (NASDAQ:SLDB) is the most popular stock in this table. On the other hand Gatos Silver, Inc. (NYSE:GATO) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks KNOT Offshore Partners LP (NYSE:KNOP) is even less popular than GATO. Our overall hedge fund sentiment score for KNOP is 25. 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. Hedge funds clearly dropped the ball on KNOP as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on KNOP as the stock returned 10.5% since Q1 (through June 11th) and outperformed the market by an even larger margin.

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