As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Kansas City Southern (NYSE:KSU).
Hedge fund interest in Kansas City Southern (NYSE:KSU) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that KSU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare KSU to other stocks including Nucor Corporation (NYSE:NUE), Franco-Nevada Corporation (NYSE:FNV), and Fortive Corporation (NYSE:FTV) to get a better sense of its popularity.
In today’s marketplace there are a large number of formulas shareholders use to value their holdings. A duo of the most under-the-radar formulas are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the elite fund managers can outpace the market by a superb amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
Alex Litowitz of Magnetar Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 take a look at the recent hedge fund action encompassing Kansas City Southern (NYSE:KSU).
Do Hedge Funds Think KSU Is A Good Stock To Buy Now?
At first quarter’s end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KSU over the last 23 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Magnetar Capital was the largest shareholder of Kansas City Southern (NYSE:KSU), with a stake worth $214.8 million reported as of the end of March. Trailing Magnetar Capital was Chilton Investment Company, which amassed a stake valued at $187.9 million. Millennium Management, Pentwater Capital Management, and Fisher Asset Management 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 Mountain Road Advisors allocated the biggest weight to Kansas City Southern (NYSE:KSU), around 7.4% of its 13F portfolio. Bluegrass Capital Partners is also relatively very bullish on the stock, designating 7.1 percent of its 13F equity portfolio to KSU.
Due to the fact that Kansas City Southern (NYSE:KSU) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds who sold off their full holdings heading into Q2. Interestingly, Farallon Capital dumped the biggest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $72.3 million in stock. Louis Bacon’s fund, Moore Global Investments, also said goodbye to its stock, about $47.2 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Kansas City Southern (NYSE:KSU) but similarly valued. We will take a look at Nucor Corporation (NYSE:NUE), Franco-Nevada Corporation (NYSE:FNV), Fortive Corporation (NYSE:FTV), The Hartford Financial Services Group Inc (NYSE:HIG), Itau Unibanco Holding SA (NYSE:ITUB), Trip.com Group Limited (NASDAQ:TCOM), and United Rentals, Inc. (NYSE:URI). All of these stocks’ market caps are similar to KSU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NUE | 25 | 191827 | -4 |
| FNV | 20 | 933238 | -7 |
| FTV | 27 | 1696539 | -6 |
| HIG | 57 | 1860836 | 21 |
| ITUB | 12 | 180456 | -7 |
| TCOM | 35 | 2144297 | 1 |
| URI | 41 | 1021749 | -5 |
| Average | 31 | 1146992 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $1147 million. That figure was $1662 million in KSU’s case. The Hartford Financial Services Group Inc (NYSE:HIG) is the most popular stock in this table. On the other hand Itau Unibanco Holding SA (NYSE:ITUB) is the least popular one with only 12 bullish hedge fund positions. Kansas City Southern (NYSE:KSU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KSU is 73.8. 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 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on KSU, though not to the same extent, as the stock returned 6.9% since Q1 (through June 18th) and outperformed the market as well.
Follow Kansas City Southern (NYSE:KSU)
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Disclosure: None. This article was originally published at Insider Monkey.
