Hedge Funds Are Selling KLA Corporation (KLAC)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards KLA Corporation (NASDAQ:KLAC).

KLA Corporation (NASDAQ:KLAC) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. KLAC was in 26 hedge funds’ portfolios at the end of the first quarter of 2020. There were 30 hedge funds in our database with KLAC positions at the end of the previous quarter. Our calculations also showed that KLAC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the 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 latest hedge fund action surrounding KLA Corporation (NASDAQ:KLAC).

What have hedge funds been doing with KLA Corporation (NASDAQ:KLAC)?

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KLAC over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alkeon Capital Management, managed by Panayotis Takis Sparaggis, holds the most valuable position in KLA Corporation (NASDAQ:KLAC). Alkeon Capital Management has a $129.1 million position in the stock, comprising 0.6% of its 13F portfolio. Coming in second is Phill Gross and Robert Atchinson of Adage Capital Management, with a $78.5 million position; 0.2% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish encompass Patrick Degorce’s Theleme Partners, Cliff Asness’s AQR Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Blue Grotto Capital allocated the biggest weight to KLA Corporation (NASDAQ:KLAC), around 4.19% of its 13F portfolio. Theleme Partners is also relatively very bullish on the stock, dishing out 2.98 percent of its 13F equity portfolio to KLAC.

Since KLA Corporation (NASDAQ:KLAC) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedgies that decided to sell off their full holdings last quarter. It’s worth mentioning that Michael Rockefeller and KarláKroeker’s Woodline Partners dumped the largest stake of the 750 funds watched by Insider Monkey, valued at close to $26.9 million in stock. Neal Nathani and Darren Dinneen’s fund, Totem Point Management, also dumped its stock, about $19.7 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to KLA Corporation (NASDAQ:KLAC). We will take a look at Spotify Technology S.A. (NYSE:SPOT), Agilent Technologies Inc. (NYSE:A), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), and McKesson Corporation (NYSE:MCK). This group of stocks’ market values resemble KLAC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.25 hedge funds with bullish positions and the average amount invested in these stocks was $1880 million. That figure was $383 million in KLAC’s case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand Agilent Technologies Inc. (NYSE:A) is the least popular one with only 35 bullish hedge fund positions. Compared to these stocks KLA Corporation (NASDAQ:KLAC) is even less popular than A. Hedge funds clearly dropped the ball on KLAC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on KLAC as the stock returned 23% so far in the second quarter and outperformed the market by an even larger margin.

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