Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Kaman Corporation (NYSE:KAMN).
Kaman Corporation (NYSE:KAMN) was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. KAMN has seen an increase in enthusiasm from smart money of late. There were 12 hedge funds in our database with KAMN holdings at the end of the previous quarter. Our calculations also showed that KAMN isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the fresh hedge fund action surrounding Kaman Corporation (NYSE:KAMN).
What have hedge funds been doing with Kaman Corporation (NYSE:KAMN)?
Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in KAMN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, GAMCO Investors held the most valuable stake in Kaman Corporation (NYSE:KAMN), which was worth $171.2 million at the end of the second quarter. On the second spot was Cardinal Capital which amassed $48.9 million worth of shares. Moreover, Citadel Investment Group, GLG Partners, and D E Shaw were also bullish on Kaman Corporation (NYSE:KAMN), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Levin Capital Strategies, managed by John A. Levin, established the largest position in Kaman Corporation (NYSE:KAMN). Levin Capital Strategies had $0.6 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also initiated a $0.6 million position during the quarter. The following funds were also among the new KAMN investors: Matthew Hulsizer’s PEAK6 Capital Management and Steve Cohen’s Point72 Asset Management.
Let’s check out hedge fund activity in other stocks similar to Kaman Corporation (NYSE:KAMN). We will take a look at Pacira BioSciences, Inc. (NASDAQ:PCRX), Avon Products, Inc. (NYSE:AVP), Columbia Financial, Inc. (NASDAQ:CLBK), and Tri Pointe Group Inc (NYSE:TPH). This group of stocks’ market values are similar to KAMN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PCRX | 28 | 582687 | 1 |
| AVP | 18 | 310922 | -4 |
| CLBK | 12 | 33342 | 4 |
| TPH | 17 | 175799 | -1 |
| Average | 18.75 | 275688 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $276 million. That figure was $237 million in KAMN’s case. Pacira BioSciences, Inc. (NASDAQ:PCRX) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 12 bullish hedge fund positions. Kaman Corporation (NYSE:KAMN) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately KAMN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KAMN investors were disappointed as the stock returned -6.3% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
