Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish 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.
Is KKR & Co Inc. (NYSE:KKR) a buy right now? The best stock pickers are in an optimistic mood. The number of long hedge fund positions inched up by 13 recently. Our calculations also showed that KKR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jeffrey Ubben of ValueAct Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s check out the fresh hedge fund action regarding KKR & Co Inc. (NYSE:KKR).
What have hedge funds been doing with KKR & Co Inc. (NYSE:KKR)?
Heading into the first quarter of 2020, a total of 56 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in KKR a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Jeffrey Ubben’s ValueAct Capital has the number one position in KKR & Co Inc. (NYSE:KKR), worth close to $1.3355 billion, corresponding to 13.5% of its total 13F portfolio. Coming in second is Charles Akre of Akre Capital Management, with a $372.1 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Ric Dillon’s Diamond Hill Capital, Richard S. Pzena’s Pzena Investment Management and John W. Rogers’s Ariel Investments. In terms of the portfolio weights assigned to each position Greenhaven Road Investment Management allocated the biggest weight to KKR & Co Inc. (NYSE:KKR), around 22.19% of its 13F portfolio. Blacksheep Fund Management is also relatively very bullish on the stock, dishing out 21.14 percent of its 13F equity portfolio to KKR.
Consequently, key hedge funds have jumped into KKR & Co Inc. (NYSE:KKR) headfirst. Point72 Asset Management, managed by Steve Cohen, created the biggest position in KKR & Co Inc. (NYSE:KKR). Point72 Asset Management had $53.5 million invested in the company at the end of the quarter. Alexis Fortune’s Blacksheep Fund Management also initiated a $28.4 million position during the quarter. The other funds with brand new KKR positions are Scott Stewart Miller’s Greenhaven Road Investment Management, Travis Cocke’s Voss Capital, and Anand Parekh’s Alyeska Investment Group.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as KKR & Co Inc. (NYSE:KKR) but similarly valued. We will take a look at Xilinx, Inc. (NASDAQ:XLNX), Verisk Analytics, Inc. (NASDAQ:VRSK), Aptiv PLC (NYSE:APTV), and Telefonica Brasil SA (NYSE:VIV). This group of stocks’ market valuations are closest to KKR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XLNX | 42 | 1025915 | -1 |
| VRSK | 33 | 848898 | -1 |
| APTV | 46 | 1053189 | 17 |
| VIV | 12 | 97729 | -1 |
| Average | 33.25 | 756433 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $756 million. That figure was $3624 million in KKR’s case. Aptiv PLC (NYSE:APTV) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks KKR & Co Inc. (NYSE:KKR) is more popular among hedge funds. 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 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately KKR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KKR were disappointed as the stock returned -17.9% during the first two months of 2020 (through March 9th) 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.
Disclosure: None. This article was originally published at Insider Monkey.
