The financial regulations require hedge funds and wealthy investors that crossed the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 28th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded FS KKR Capital Corp. (NYSE:FSK) based on those filings.
FS KKR Capital Corp. (NYSE:FSK) was in 16 hedge funds’ portfolios at the end of June. FSK shareholders have witnessed a decrease in hedge fund sentiment of late. There were 19 hedge funds in our database with FSK holdings at the end of the previous quarter. Our calculations also showed that FSK isn’t among the 30 most popular stocks among hedge funds (view 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 analyze the new hedge fund action regarding FS KKR Capital Corp. (NYSE:FSK).
What have hedge funds been doing with FS KKR Capital Corp. (NYSE:FSK)?
At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in FSK over the last 16 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Beach Point Capital Management held the most valuable stake in FS KKR Capital Corp. (NYSE:FSK), which was worth $115.3 million at the end of the second quarter. On the second spot was HBK Investments which amassed $45.6 million worth of shares. Moreover, Citadel Investment Group, Almitas Capital, and McKinley Capital Management were also bullish on FS KKR Capital Corp. (NYSE:FSK), allocating a large percentage of their portfolios to this stock.
Since FS KKR Capital Corp. (NYSE:FSK) has witnessed bearish sentiment from hedge fund managers, logic holds that there was a specific group of funds that slashed their full holdings heading into Q3. Interestingly, Leon Cooperman’s Omega Advisors dropped the biggest position of the 750 funds tracked by Insider Monkey, worth an estimated $0.5 million in stock. Andrew Feldstein and Stephen Siderow’s fund, Blue Mountain Capital, also dumped its stock, about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds heading into Q3.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as FS KKR Capital Corp. (NYSE:FSK) but similarly valued. These stocks are Merit Medical Systems, Inc. (NASDAQ:MMSI), Rexnord Corporation (NYSE:RXN), Stitch Fix, Inc. (NASDAQ:SFIX), and UMB Financial Corporation (NASDAQ:UMBF). This group of stocks’ market valuations match FSK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MMSI | 17 | 236611 | 0 |
| RXN | 20 | 209545 | -1 |
| SFIX | 28 | 261732 | 1 |
| UMBF | 16 | 80456 | 7 |
| Average | 20.25 | 197086 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $224 million in FSK’s case. Stitch Fix, Inc. (NASDAQ:SFIX) is the most popular stock in this table. On the other hand UMB Financial Corporation (NASDAQ:UMBF) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks FS KKR Capital Corp. (NYSE:FSK) is even less popular than UMBF. Hedge funds dodged a bullet by taking a bearish stance towards FSK. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FSK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FSK investors were disappointed as the stock returned 1% 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.
