The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Kansas City Southern (NYSE:KSU) based on those filings.
Kansas City Southern (NYSE:KSU) investors should be aware of an increase in enthusiasm from smart money in recent months. Kansas City Southern (NYSE:KSU) was in 61 hedge funds’ portfolios at the end of June. The all time high for this statistic is 53. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that KSU isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Richard Chilton of Chilton Investment Company
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. Now let’s take a gander at the latest hedge fund action surrounding Kansas City Southern (NYSE:KSU).
Do Hedge Funds Think KSU Is A Good Stock To Buy Now?
At Q2’s end, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the first quarter of 2020. By comparison, 47 hedge funds held shares or bullish call options in KSU a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Pentwater Capital Management held the most valuable stake in Kansas City Southern (NYSE:KSU), which was worth $585.2 million at the end of the second quarter. On the second spot was Millennium Management which amassed $238.8 million worth of shares. Citadel Investment Group, TIG Advisors, and Chilton Investment Company 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 BCK Capital allocated the biggest weight to Kansas City Southern (NYSE:KSU), around 9.36% of its 13F portfolio. Hunting Hill Global Capital is also relatively very bullish on the stock, setting aside 7.99 percent of its 13F equity portfolio to KSU.
Consequently, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Kansas City Southern (NYSE:KSU). Balyasny Asset Management had $128.2 million invested in the company at the end of the quarter. Daniel S. Och’s OZ Management also initiated a $107.7 million position during the quarter. The other funds with new positions in the stock are Simon Sadler’s Segantii Capital, Simon Davies’s Sand Grove Capital Partners, and John Paulson’s Paulson & Co.
Let’s go over hedge fund activity in other stocks similar to Kansas City Southern (NYSE:KSU). We will take a look at Teladoc Health, Inc (NYSE:TDOC), Verisign, Inc. (NASDAQ:VRSN), Telefonica S.A. (NYSE:TEF), Consolidated Edison, Inc. (NYSE:ED), Realty Income Corporation (NYSE:O), DTE Energy Company (NYSE:DTE), and ZTO Express (Cayman) Inc. (NYSE:ZTO). This group of stocks’ market caps are closest to KSU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TDOC | 43 | 3574007 | 1 |
| VRSN | 41 | 6102142 | -1 |
| TEF | 4 | 8903 | -2 |
| ED | 30 | 533462 | 8 |
| O | 23 | 221703 | 5 |
| DTE | 32 | 469838 | 6 |
| ZTO | 21 | 983038 | 6 |
| Average | 27.7 | 1699013 | 3.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $1699 million. That figure was $3303 million in KSU’s case. Teladoc Health, Inc (NYSE:TDOC) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Kansas City Southern (NYSE:KSU) is more popular among hedge funds. Our overall hedge fund sentiment score for KSU is 90. 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. 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 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. Unfortunately KSU wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KSU were disappointed as the stock returned -2.6% since the end of the second quarter (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
