Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Kaiser Aluminum Corporation (NASDAQ:KALU).
Kaiser Aluminum Corporation (NASDAQ:KALU) investors should be aware of an increase in enthusiasm from smart money recently. KALU was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. There were 15 hedge funds in our database with KALU holdings at the end of the previous quarter. Our calculations also showed that KALU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the latest hedge fund action regarding Kaiser Aluminum Corporation (NASDAQ:KALU).
Hedge fund activity in Kaiser Aluminum Corporation (NASDAQ:KALU)
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the second quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in KALU 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.
Among these funds, Renaissance Technologies held the most valuable stake in Kaiser Aluminum Corporation (NASDAQ:KALU), which was worth $32.1 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $18.3 million worth of shares. GLG Partners, Winton Capital Management, 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 Huber Capital Management allocated the biggest weight to Kaiser Aluminum Corporation (NASDAQ:KALU), around 0.62% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, dishing out 0.36 percent of its 13F equity portfolio to KALU.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, created the biggest position in Kaiser Aluminum Corporation (NASDAQ:KALU). Holocene Advisors had $1.5 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $1.3 million investment in the stock during the quarter. The following funds were also among the new KALU investors: Paul Marshall and Ian Wace’s Marshall Wace, Minhua Zhang’s Weld Capital Management, and Donald Sussman’s Paloma Partners.
Let’s go over hedge fund activity in other stocks similar to Kaiser Aluminum Corporation (NASDAQ:KALU). We will take a look at Hub Group Inc (NASDAQ:HUBG), Alder Biopharmaceuticals Inc (NASDAQ:ALDR), Insmed Incorporated (NASDAQ:INSM), and La-Z-Boy Incorporated (NYSE:LZB). All of these stocks’ market caps match KALU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HUBG | 21 | 255820 | 3 |
| ALDR | 29 | 829615 | 14 |
| INSM | 22 | 372563 | -1 |
| LZB | 23 | 92601 | 2 |
| Average | 23.75 | 387650 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $388 million. That figure was $119 million in KALU’s case. Alder Biopharmaceuticals Inc (NASDAQ:ALDR) is the most popular stock in this table. On the other hand Hub Group Inc (NASDAQ:HUBG) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Kaiser Aluminum Corporation (NASDAQ:KALU) is even less popular than HUBG. Hedge funds clearly dropped the ball on KALU as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on KALU as the stock returned 11.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
