Here Is What Hedge Funds Think About KLA-Tencor Corporation (KLAC)

The third quarter was a rough one for most investors, as fears of an interest rate hike in the U.S, a weakening economy in China, and a stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards KLA-Tencor Corporation (NASDAQ:KLAC), and what that likely means for the prospects of the company and its stock.

KLA-Tencor Corporation (NASDAQ:KLAC) was in 28 hedge funds’ portfolios at the end of the third quarter of 2015. KLAC has experienced an increase in activity from the world’s largest hedge funds recently. There were 24 hedge funds in our database with KLAC holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Interpublic Group of Companies Inc (NYSE:IPG), Fitbit Inc (NYSE:FIT), and CenterPoint Energy, Inc. (NYSE:CNP) to gather more data points.

To most shareholders, hedge funds are assumed to be underperforming, outdated financial tools of the past. While there are more than 8000 funds with their doors open at the moment, Our experts choose to focus on the bigwigs of this group, approximately 700 funds. These money managers preside over the lion’s share of the hedge fund industry’s total asset base, and by monitoring their unrivaled stock picks, Insider Monkey has come up with many investment strategies that have historically exceeded Mr. Market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Keeping this in mind, we’re going to view the key action regarding KLA-Tencor Corporation (NASDAQ:KLAC).

What does the smart money think about KLA-Tencor Corporation (NASDAQ:KLAC)?

Heading into Q4, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the largest position in KLA-Tencor Corporation (NASDAQ:KLAC). Two Sigma Advisors has an $57 million position in the stock, comprising 0.4% of its 13F portfolio. On Two Sigma Advisors’ heels is Gotham Asset Management, managed by Joel Greenblatt, which holds an $48.6 million position; 0.5% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions consist of John Orrico’s Water Island Capital, Israel Englander’s Millennium Management and Nick Niell’s Arrowgrass Capital Partners.

Consequently, some big names have jumped into KLA-Tencor Corporation (NASDAQ:KLAC) headfirst. Water Island Capital, managed by John Orrico, created the most outsized position in KLA-Tencor Corporation (NASDAQ:KLAC). Water Island Capital had $26.3 million invested in the company at the end of the quarter. Jim Simons’ Renaissance Technologies also initiated an $11.8 million position during the quarter. The following funds were also among the new KLAC investors: Jacob Gottlieb’s Visium Asset Management, Noam Gottesman’s GLG Partners, and Neil Chriss’s Hutchin Hill Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as KLA-Tencor Corporation (NASDAQ:KLAC) but similarly valued. These stocks are Interpublic Group of Companies Inc (NYSE:IPG), Fitbit Inc (NYSE:FIT), CenterPoint Energy, Inc. (NYSE:CNP), and AMERCO (NASDAQ:UHAL). This group of stocks’ market caps match KLAC’s market cap.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $712 million. That figure was $256 million in KLAC’s case. Interpublic Group of Companies Inc (NYSE:IPG) is the most popular stock in this table. On the other hand Fitbit Inc (NYSE:FIT) is the least popular one with only 20 bullish hedge fund positions. KLA-Tencor Corporation (NASDAQ:KLAC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard IPG might be a better candidate to consider a long position.