We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards The Kroger Co. (NYSE:KR).
Is KR a good stock to buy? The Kroger Co. (NYSE:KR) shareholders have witnessed a decrease in hedge fund sentiment of late. The Kroger Co. (NYSE:KR) was in 35 hedge funds’ portfolios at the end of March. The all time high for this statistic is 46. There were 36 hedge funds in our database with KR holdings at the end of December. Our calculations also showed that KR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Donald Sussman of Paloma Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to go over the recent hedge fund action regarding The Kroger Co. (NYSE:KR).
Do Hedge Funds Think KR Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 43 hedge funds with a bullish position in KR a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Berkshire Hathaway was the largest shareholder of The Kroger Co. (NYSE:KR), with a stake worth $1837.7 million reported as of the end of March. Trailing Berkshire Hathaway was Renaissance Technologies, which amassed a stake valued at $618.1 million. AQR Capital Management, Millennium Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Game Creek Capital allocated the biggest weight to The Kroger Co. (NYSE:KR), around 3.17% of its 13F portfolio. Te Ahumairangi Investment Management is also relatively very bullish on the stock, designating 1.92 percent of its 13F equity portfolio to KR.
Seeing as The Kroger Co. (NYSE:KR) has faced falling interest from the entirety of the hedge funds we track, logic holds that there were a few money managers that elected to cut their entire stakes last quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management dumped the biggest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $56.2 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund cut about $5 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Kroger Co. (NYSE:KR) but similarly valued. We will take a look at American Water Works Company, Inc. (NYSE:AWK), Ameriprise Financial, Inc. (NYSE:AMP), Tyson Foods, Inc. (NYSE:TSN), RingCentral Inc (NYSE:RNG), Mettler-Toledo International Inc. (NYSE:MTD), Ferguson plc (NYSE:FERG), and Dollar Tree, Inc. (NASDAQ:DLTR). This group of stocks’ market values are similar to KR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AWK | 30 | 1109517 | -6 |
| AMP | 37 | 969834 | 3 |
| TSN | 28 | 761852 | -10 |
| RNG | 51 | 3249906 | -12 |
| MTD | 27 | 1040369 | -2 |
| FERG | 5 | 1642726 | 5 |
| DLTR | 41 | 1686679 | -12 |
| Average | 31.3 | 1494412 | -4.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $1494 million. That figure was $3155 million in KR’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Ferguson plc (NYSE:FERG) is the least popular one with only 5 bullish hedge fund positions. The Kroger Co. (NYSE:KR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KR is 59.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. Hedge funds were also right about betting on KR, though not to the same extent, as the stock returned 9.5% since Q1 (through June 25th) and outperformed the market as well.
Follow Kroger Co (NYSE:KR)
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Disclosure: None. This article was originally published at Insider Monkey.
