Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Koppers Holdings Inc. (NYSE:KOP) to find out whether it was one of their high conviction long-term ideas.
Koppers Holdings Inc. (NYSE:KOP) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. Our calculations also showed that kop isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a look at the recent hedge fund action encompassing Koppers Holdings Inc. (NYSE:KOP).
What does the smart money think about Koppers Holdings Inc. (NYSE:KOP)?
Heading into the fourth quarter of 2018, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in KOP at the beginning of this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies, managed by Jim Simons, holds the biggest position in Koppers Holdings Inc. (NYSE:KOP). Renaissance Technologies has a $11.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is D E Shaw, led by D. E. Shaw, holding a $7.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Israel Englander’s Millennium Management, Noam Gottesman’s GLG Partners and Jeffrey Moskowitz’s Harvey Partners.
Since Koppers Holdings Inc. (NYSE:KOP) has witnessed falling interest from the smart money, logic holds that there exists a select few fund managers who were dropping their full holdings last quarter. Interestingly, Brian C. Freckmann’s Lyon Street Capital said goodbye to the largest investment of the “upper crust” of funds tracked by Insider Monkey, comprising close to $2.2 million in stock. Peter Algert and Kevin Coldiron’s fund, Algert Coldiron Investors, also dumped its stock, about $1.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Koppers Holdings Inc. (NYSE:KOP) but similarly valued. We will take a look at ShotSpotter, Inc. (NASDAQ:SSTI), Sapiens International Corporation N.V. (NASDAQ:SPNS), Bridge Bancorp, Inc. (NASDAQ:BDGE), and Dorchester Minerals LP (NASDAQ:DMLP). This group of stocks’ market valuations are closest to KOP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SSTI | 5 | 36617 | 0 |
| SPNS | 3 | 7152 | 1 |
| BDGE | 11 | 117797 | 1 |
| DMLP | 6 | 25387 | -2 |
| Average | 6.25 | 46738 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $45 million in KOP’s case. Bridge Bancorp, Inc. (NASDAQ:BDGE) is the most popular stock in this table. On the other hand Sapiens International Corporation N.V. (NASDAQ:SPNS) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Koppers Holdings Inc. (NYSE:KOP) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
