Hedge Funds Are Selling Kennedy-Wilson Holdings Inc (KW)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The time period between June 25 and the end of October was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Kennedy-Wilson Holdings Inc (NYSE:KW).

Is Kennedy-Wilson Holdings Inc a good investment right now? Prominent investors are taking a pessimistic view. The number of bullish hedge fund positions dropped by 2 in recent months. At the end of this article we will also compare KW to other stocks including Cree, Inc. (NASDAQ:CREE), Univar Inc (NYSE:UNVR), and Healthcare Realty Trust Inc (NYSE:HR) to get a better sense of its popularity.

In the eyes of most traders, hedge funds are seen as worthless, old investment vehicles of the past. While there are greater than 8000 funds trading at present, We choose to focus on the bigwigs of this club, approximately 700 funds. These investment experts command most of all hedge funds’ total asset base, and by following their unrivaled stock picks, Insider Monkey has come up with many investment strategies that have historically surpassed Mr. Market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, we’re going to analyze the fresh action encompassing Kennedy-Wilson Holdings Inc (NYSE:KW).

How are hedge funds trading Kennedy-Wilson Holdings Inc (NYSE:KW)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Fairfax Financial Holdings, managed by Prem Watsa, holds the biggest position in Kennedy-Wilson Holdings Inc (NYSE:KW). Fairfax Financial Holdings has a $198.6 million position in the stock, comprising 18.4% of its 13F portfolio. The second largest stake is held by Alan S. Parsow of Elkhorn Partners, with a $86.1 million position; the fund has 53.2% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass Chuck Royce’s Royce & Associates, Porter Collins, Daniel Moses, and Vincent Daniel’s Seawolf Capital and Martin Whitman’s Third Avenue Management.

Because Kennedy-Wilson Holdings Inc (NYSE:KW) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedge funds who sold off their entire stakes in the third quarter. Interestingly, D. E. Shaw’s D E Shaw said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising about $4.3 million in stock. Glenn Russell Dubin’s fund, Highbridge Capital Management, also cut its stock, about $0.9 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to Kennedy-Wilson Holdings Inc (NYSE:KW). We will take a look at Cree, Inc. (NASDAQ:CREE), Univar Inc (NYSE:UNVR), Healthcare Realty Trust Inc (NYSE:HR), and ACI Worldwide Inc (NASDAQ:ACIW). This group of stocks’ market values are closest to KW’s market value.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $484 million in KW’s case. ACI Worldwide Inc (NASDAQ:ACIW) is the most popular stock in this table. On the other hand Healthcare Realty Trust Inc (NYSE:HR) is the least popular one with only 10 bullish hedge fund positions. Kennedy-Wilson Holdings Inc (NYSE:KW) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ACIW might be a better candidate to consider a long position.