Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
One stock that saw an increase in popularity among smart money investors tracked by Insider Monkey last quarter is Kindred Healthcare, Inc. (NYSE:KND). At the end of September, the stock was included in the 13F portfolios of 20 funds, versus 17 funds at the end of June. At the end of this article we will also compare KND to other stocks including Pengrowth Energy Corp (USA) (NYSE:PGH), Invesco Dynamic Credit Opportunities Fd (NYSE:VTA), and Urstadt Biddle Properties Inc (NYSE:UBA) to get a better sense of its popularity.
Follow Kindred Healthcare Inc (NYSE:KND)
Follow Kindred Healthcare Inc (NYSE:KND)
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Now, let’s take a gander at the new action encompassing Kindred Healthcare, Inc. (NYSE:KND).
How have hedgies been trading Kindred Healthcare, Inc. (NYSE:KND)?
Heading into the fourth quarter of 2016, 20 hedge funds tracked by Insider Monkey were long Kindred Healthcare, up by 18% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in KND heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Clint Carlson’s Carlson Capital holds the number one position in Kindred Healthcare, Inc. (NYSE:KND). Carlson Capital has a $41.1 million position in the stock, comprising 0.5% of its 13F portfolio. Sitting at the No. 2 spot is North Tide Capital, led by Conan Laughlin, which holds a $40.9 million position; the fund has 4.5% of its 13F portfolio invested in the stock. Other professional money managers that are bullish consist of Don Morgan’s Brigade Capital, Larry Robbins’ Glenview Capital, and David Keidan’s Buckingham Capital Management. We should note that Brigade Capital is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Citadel Investment Group, led by Ken Griffin, assembled the most outsized position in Kindred Healthcare, Inc. (NYSE:KND). Citadel Investment Group had $2.5 million invested in the company at the end of the quarter. Neil Chriss’ Hutchin Hill Capital also initiated a $1.5 million position during the quarter. The following funds were also among the new KND investors: Mike Vranos’ Ellington and Matthew Tewksbury’s Stevens Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Kindred Healthcare, Inc. (NYSE:KND) but similarly valued. We will take a look at Pengrowth Energy Corp (USA) (NYSE:PGH), Invesco Dynamic Credit Opportunities Fd (NYSE:VTA), Urstadt Biddle Properties Inc (NYSE:UBA), and Banc of California Inc (NYSE:BANC). This group of stocks’ market values resemble KND’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PGH | 7 | 9584 | 2 |
| VTA | 4 | 11543 | -2 |
| UBA | 8 | 23939 | 2 |
| BANC | 21 | 77709 | 4 |
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $31 million, which is lower than the $153 million figure in KND’s case. Banc of California Inc (NYSE:BANC) is the most popular stock in this table. On the other hand Invesco Dynamic Credit Opportunities Fd (NYSE:VTA) is the least popular one with only four funds holding shares. Kindred Healthcare, Inc. (NYSE:KND) 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 Banc of California Inc (NYSE:BANC) might be a better candidate to consider taking a long position in.
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Disclosure: None
