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. Is FS KKR Capital Corp. (NYSE:FSK) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is FS KKR Capital Corp. (NYSE:FSK) a healthy stock for your portfolio? Prominent investors are becoming more confident. The number of long hedge fund positions moved up by 2 in recent months. Our calculations also showed that FSK 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let’s take a glance at the latest hedge fund action regarding FS KKR Capital Corp. (NYSE:FSK).
How are hedge funds trading FS KKR Capital Corp. (NYSE:FSK)?
Heading into the first quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FSK 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 Insider Monkey’s hedge fund database, Beach Point Capital Management, managed by Carl Goldsmith and Scott Klein, holds the largest position in FS KKR Capital Corp. (NYSE:FSK). Beach Point Capital Management has a $98.8 million position in the stock, comprising 48.8% of its 13F portfolio. On Beach Point Capital Management’s heels is HBK Investments, managed by David Costen Haley, which holds a $33.8 million position; 0.4% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism comprise Eric Schneider’s OCO Capital Partners, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Beach Point Capital Management allocated the biggest weight to FS KKR Capital Corp. (NYSE:FSK), around 48.79% of its 13F portfolio. OCO Capital Partners is also relatively very bullish on the stock, setting aside 24.55 percent of its 13F equity portfolio to FSK.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. OCO Capital Partners, managed by Eric Schneider, initiated the most valuable position in FS KKR Capital Corp. (NYSE:FSK). OCO Capital Partners had $18.4 million invested in the company at the end of the quarter. Keith M. Rosenbloom’s Cruiser Capital Advisors also made a $2 million investment in the stock during the quarter. The other funds with brand new FSK positions are John Overdeck and David Siegel’s Two Sigma Advisors, Donald Sussman’s Paloma Partners, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as FS KKR Capital Corp. (NYSE:FSK) but similarly valued. We will take a look at CenterState Bank Corporation (NASDAQ:CSFL), Amkor Technology, Inc. (NASDAQ:AMKR), Legg Mason, Inc. (NYSE:LM), and Anixter International Inc. (NYSE:AXE). This group of stocks’ market valuations are closest to FSK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CSFL | 16 | 77742 | 3 |
| AMKR | 29 | 198950 | 2 |
| LM | 37 | 434299 | 9 |
| AXE | 43 | 616473 | 23 |
| Average | 31.25 | 331866 | 9.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $332 million. That figure was $234 million in FSK’s case. Anixter International Inc. (NYSE:AXE) is the most popular stock in this table. On the other hand CenterState Bank Corporation (NASDAQ:CSFL) is the least popular one with only 16 bullish hedge fund positions. FS KKR Capital Corp. (NYSE:FSK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately FSK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FSK investors were disappointed as the stock returned -50.8% 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 in Q1.
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.
