There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze KMG Chemicals, Inc. (NYSE:KMG).
KMG Chemicals, Inc. (NYSE:KMG) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that KMG isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to check out the recent hedge fund action surrounding KMG Chemicals, Inc. (NYSE:KMG).
Hedge fund activity in KMG Chemicals, Inc. (NYSE:KMG)
Heading into the fourth quarter of 2018, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 44% from the second quarter of 2018. By comparison, 13 hedge funds held shares or bullish call options in KMG heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Renaissance Technologies, managed by Jim Simons, holds the largest position in KMG Chemicals, Inc. (NYSE:KMG). Renaissance Technologies has a $46 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Glazer Capital, led by Paul Glazer, holding a $26.1 million position; the fund has 2.7% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include Paul Tudor Jones’s Tudor Investment Corp, John Orrico’s Water Island Capital and Clint Carlson’s Carlson Capital.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Glazer Capital, managed by Paul Glazer, assembled the largest position in KMG Chemicals, Inc. (NYSE:KMG). Glazer Capital had $26.1 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $18.4 million position during the quarter. The other funds with new positions in the stock are John Orrico’s Water Island Capital, Clint Carlson’s Carlson Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as KMG Chemicals, Inc. (NYSE:KMG) but similarly valued. These stocks are Rambus Inc. (NASDAQ:RMBS), Resolute Forest Products Inc (NYSE:RFP), Retrophin Inc (NASDAQ:RTRX), and TriCo Bancshares (NASDAQ:TCBK). All of these stocks’ market caps are similar to KMG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RMBS | 11 | 64408 | 2 |
| RFP | 22 | 534440 | 1 |
| RTRX | 22 | 482411 | 3 |
| TCBK | 11 | 46732 | 0 |
| Average | 16.5 | 281998 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $282 million. That figure was $199 million in KMG’s case. Resolute Forest Products Inc (NYSE:RFP) is the most popular stock in this table. On the other hand Rambus Inc. (NASDAQ:RMBS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks KMG Chemicals, Inc. (NYSE:KMG) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
