At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Kraton Corporation (NYSE:KRA) a buy right now? Hedge funds are turning bullish. The number of long hedge fund bets increased by 2 in recent months. Our calculations also showed that kra isn’t among the 30 most popular stocks among hedge funds. KRA was in 19 hedge funds’ portfolios at the end of the first quarter of 2019. There were 17 hedge funds in our database with KRA positions at the end of the previous quarter.
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.
We’re going to review the latest hedge fund action surrounding Kraton Corporation (NYSE:KRA).
What have hedge funds been doing with Kraton Corporation (NYSE:KRA)?
Heading into the second quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the fourth quarter of 2018. On the other hand, there were a total of 22 hedge funds with a bullish position in KRA a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Kraton Corporation (NYSE:KRA) was held by Renaissance Technologies, which reported holding $24.8 million worth of stock at the end of March. It was followed by Royce & Associates with a $19.9 million position. Other investors bullish on the company included GLG Partners, Corsair Capital Management, and Marshall Wace LLP.
Consequently, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the largest position in Kraton Corporation (NYSE:KRA). Balyasny Asset Management had $1 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $0.5 million position during the quarter. The following funds were also among the new KRA investors: Thomas Bailard’s Bailard Inc, Keith M. Rosenbloom’s Cruiser Capital Advisors, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s check out hedge fund activity in other stocks similar to Kraton Corporation (NYSE:KRA). These stocks are Oil States International, Inc. (NYSE:OIS), National Bank Holdings Corp (NYSE:NBHC), C&J Energy Services, Inc (NYSE:CJ), and Multi-Color Corporation (NASDAQ:LABL). This group of stocks’ market values are closest to KRA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OIS | 14 | 34336 | 4 |
| NBHC | 8 | 78221 | -2 |
| CJ | 25 | 234976 | 0 |
| LABL | 12 | 67813 | 2 |
| Average | 14.75 | 103837 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $98 million in KRA’s case. C&J Energy Services, Inc (NYSE:CJ) is the most popular stock in this table. On the other hand National Bank Holdings Corp (NYSE:NBHC) is the least popular one with only 8 bullish hedge fund positions. Kraton Corporation (NYSE:KRA) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately KRA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KRA were disappointed as the stock returned -20.8% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
