“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Kraton Corporation (NYSE:KRA).
Kraton Corporation (NYSE:KRA) was in 15 hedge funds’ portfolios at the end of September. KRA investors should pay attention to a decrease in hedge fund interest recently. There were 17 hedge funds in our database with KRA positions at the end of the previous quarter. Our calculations also showed that KRA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the key hedge fund action encompassing Kraton Corporation (NYSE:KRA).
How have hedgies been trading Kraton Corporation (NYSE:KRA)?
At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KRA over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Kraton Corporation (NYSE:KRA) was held by Renaissance Technologies, which reported holding $21 million worth of stock at the end of September. It was followed by Royce & Associates with a $17 million position. Other investors bullish on the company included Corsair Capital Management, Scoggin, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Corsair Capital Management allocated the biggest weight to Kraton Corporation (NYSE:KRA), around 4.31% of its 13F portfolio. Springowl Associates is also relatively very bullish on the stock, earmarking 1.7 percent of its 13F equity portfolio to KRA.
Because Kraton Corporation (NYSE:KRA) has faced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that decided to sell off their full holdings last quarter. Intriguingly, Curtis Schenker and Craig Effron’s Scoggin dropped the largest investment of the 750 funds watched by Insider Monkey, worth about $3.6 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also cut its stock, about $0.6 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Kraton Corporation (NYSE:KRA). We will take a look at Patrick Industries, Inc. (NASDAQ:PATK), Playa Hotels & Resorts N.V. (NASDAQ:PLYA), Xperi Corporation (NASDAQ:XPER), and Fate Therapeutics Inc (NASDAQ:FATE). This group of stocks’ market values resemble KRA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PATK | 16 | 98893 | 1 |
| PLYA | 17 | 436123 | -1 |
| XPER | 19 | 114631 | -2 |
| FATE | 23 | 417119 | 5 |
| Average | 18.75 | 266692 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $267 million. That figure was $71 million in KRA’s case. Fate Therapeutics Inc (NASDAQ:FATE) is the most popular stock in this table. On the other hand Patrick Industries, Inc. (NASDAQ:PATK) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Kraton Corporation (NYSE:KRA) is even less popular than PATK. Hedge funds dodged a bullet by taking a bearish stance towards KRA. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately KRA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KRA investors were disappointed as the stock returned -30.2% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
