We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Knowles Corp (NYSE:KN), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Knowles Corp (NYSE:KN) was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. KN investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. There were 28 hedge funds in our database with KN positions at the end of the previous quarter. Our calculations also showed that KN 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
Philip Hempleman of Ardsley Partners
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the new hedge fund action encompassing Knowles Corp (NYSE:KN).
How have hedgies been trading Knowles Corp (NYSE:KN)?
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in KN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Falcon Edge Capital was the largest shareholder of Knowles Corp (NYSE:KN), with a stake worth $79.3 million reported as of the end of September. Trailing Falcon Edge Capital was Ariel Investments, which amassed a stake valued at $75.8 million. Millennium Management, D E Shaw, and Fisher Asset Management 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 Falcon Edge Capital allocated the biggest weight to Knowles Corp (NYSE:KN), around 15.33% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, setting aside 1.08 percent of its 13F equity portfolio to KN.
As industrywide interest jumped, key money managers have been driving this bullishness. Woodline Partners, managed by Michael Rockefeller and Karl Kroeker, assembled the most valuable position in Knowles Corp (NYSE:KN). Woodline Partners had $7.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $4.4 million position during the quarter. The other funds with new positions in the stock are Qing Li’s Sciencast Management, Ravee Mehta’s Nishkama Capital, and Hoon Kim’s Quantinno Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Knowles Corp (NYSE:KN) but similarly valued. These stocks are Ping Identity Holding Corp. (NYSE:PING), Columbia Financial, Inc. (NASDAQ:CLBK), SPS Commerce, Inc. (NASDAQ:SPSC), and Safety, Income & Growth Inc. (NYSE:SAFE). This group of stocks’ market valuations are similar to KN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PING | 10 | 38698 | -8 |
| CLBK | 11 | 46457 | 1 |
| SPSC | 24 | 197277 | 4 |
| SAFE | 7 | 16346 | -1 |
| Average | 13 | 74695 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $307 million in KN’s case. SPS Commerce, Inc. (NASDAQ:SPSC) is the most popular stock in this table. On the other hand Safety, Income & Growth Inc. (NYSE:SAFE) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Knowles Corp (NYSE:KN) 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 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately KN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KN were disappointed as the stock returned -33.7% during the three months of 2020 (through April 6th) 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 2020.
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.
