You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Kennametal Inc. (NYSE:KMT) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of the second quarter of 2019. 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 Barnes Group Inc. (NYSE:B), Altera Corporation (NASDAQ:ALTR), and Hilton Grand Vacations Inc. (NYSE:HGV) to gather more data points. Our calculations also showed that KMT 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. Let’s go over the latest hedge fund action regarding Kennametal Inc. (NYSE:KMT).
How have hedgies been trading Kennametal Inc. (NYSE:KMT)?
At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in KMT a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, John W. Rogers’s Ariel Investments has the most valuable position in Kennametal Inc. (NYSE:KMT), worth close to $194.7 million, comprising 2.4% of its total 13F portfolio. Sitting at the No. 2 spot is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $45.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism include Cliff Asness’s AQR Capital Management, Mario Gabelli’s GAMCO Investors and Ken Griffin’s Citadel Investment Group.
Seeing as Kennametal Inc. (NYSE:KMT) has faced a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies who were dropping their entire stakes last quarter. Interestingly, John Hempton’s Bronte Capital sold off the biggest investment of the 750 funds tracked by Insider Monkey, comprising close to $2.1 million in stock. Sara Nainzadeh’s fund, Centenus Global Management, also sold off its stock, about $1.5 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Kennametal Inc. (NYSE:KMT). These stocks are Barnes Group Inc. (NYSE:B), Altair Engineering Inc. (NASDAQ:ALTR), Hilton Grand Vacations Inc. (NYSE:HGV), and Mimecast Limited (NASDAQ:MIME). All of these stocks’ market caps are closest to KMT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| B | 15 | 56949 | -3 |
| ALTR | 14 | 81367 | -4 |
| HGV | 37 | 959432 | 0 |
| MIME | 26 | 846004 | -9 |
| Average | 23 | 485938 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $486 million. That figure was $322 million in KMT’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Altera Corporation (NASDAQ:ALTR) is the least popular one with only 14 bullish hedge fund positions. Kennametal Inc. (NYSE:KMT) 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 KMT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KMT investors were disappointed as the stock returned -16.3% 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.
