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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Kontoor Brands, Inc. (NASDAQ:KTB) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Kontoor Brands, Inc. (NASDAQ:KTB) was in 14 hedge funds’ portfolios at the end of December. KTB has experienced a decrease in support from the world’s most elite money managers recently. There were 21 hedge funds in our database with KTB holdings at the end of the previous quarter. Our calculations also showed that KTB 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).
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.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 let’s view the recent hedge fund action encompassing Kontoor Brands, Inc. (NASDAQ:KTB).
How are hedge funds trading Kontoor Brands, Inc. (NYSE:KTB)?
Heading into the first quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in KTB 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.
More specifically, Arrowstreet Capital was the largest shareholder of Kontoor Brands, Inc. (NYSE:KTB), with a stake worth $27.8 million reported as of the end of September. Trailing Arrowstreet Capital was D E Shaw, which amassed a stake valued at $15.5 million. Paloma Partners, Ancora Advisors, 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 Ancora Advisors allocated the biggest weight to Kontoor Brands, Inc. (NYSE:KTB), around 0.4% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, setting aside 0.16 percent of its 13F equity portfolio to KTB.
Due to the fact that Kontoor Brands, Inc. (NYSE:KTB) has experienced bearish sentiment from hedge fund managers, logic holds that there exists a select few funds that elected to cut their full holdings heading into Q4. At the top of the heap, Scott Wallace’s Wallace Capital Management said goodbye to the biggest position of all the hedgies watched by Insider Monkey, worth about $10.9 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund sold off about $4.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 7 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Kontoor Brands, Inc. (NYSE:KTB) but similarly valued. We will take a look at M.D.C. Holdings, Inc. (NYSE:MDC), Aircastle Limited (NYSE:AYR), Independent Bank Group Inc (NASDAQ:IBTX), and Avis Budget Group Inc. (NASDAQ:CAR). This group of stocks’ market values are closest to KTB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDC | 17 | 107469 | -2 |
| AYR | 20 | 156897 | 6 |
| IBTX | 23 | 104488 | 10 |
| CAR | 27 | 1228226 | 4 |
| Average | 21.75 | 399270 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was $102 million in KTB’s case. Avis Budget Group Inc. (NASDAQ:CAR) is the most popular stock in this table. On the other hand M.D.C. Holdings, Inc. (NYSE:MDC) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Kontoor Brands, Inc. (NYSE:KTB) is even less popular than MDC. Hedge funds dodged a bullet by taking a bearish stance towards KTB. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately KTB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KTB investors were disappointed as the stock returned -63.5% 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 so far in 2020.
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.
