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.
Is Kennedy-Wilson Holdings Inc (NYSE:KW) a bargain? Prominent investors are unambiguously selling. The number of long hedge fund positions that are disclosed in regulatory 13F filings retreated by 5 lately. KW was in 11 hedge funds’ portfolios at the end of the third quarter of 2016. There were 16 hedge funds in our database with KW holdings at the end of the previous quarter. At the end of this article we will also compare KW to other stocks including TiVo Corp (NASDAQ:TIVO), Choice Hotels International, Inc. (NYSE:CHH), and QTS Realty Trust Inc (NYSE:QTS) to get a better sense of its popularity.
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Follow Kennedy-Wilson Holdings Inc. (NYSE:KW)
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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Keeping this in mind, let’s take a peek at the key action surrounding Kennedy-Wilson Holdings Inc (NYSE:KW).
Hedge fund activity in Kennedy-Wilson Holdings Inc (NYSE:KW)
Heading into the fourth quarter of 2016, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 31% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in KW over the last 5 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Prem Watsa’s Fairfax Financial Holdings has the biggest position in Kennedy-Wilson Holdings Inc (NYSE:KW), worth close to $201.8 million, comprising 18.2% of its total 13F portfolio. On Fairfax Financial Holdings’ heels is Elkhorn Partners, led by Alan S. Parsow, which holds a $90 million position; 54% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism consist of Martin Whitman’s Third Avenue Management, Chuck Royce’s Royce & Associates and Richard S. Meisenberg’s ACK Asset Management. We should note that none of these hedge funds are 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.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually said goodbye to their positions entirely. It’s worth mentioning that Porter Collins, Daniel Moses, and Vincent Daniel’s Seawolf Capital said goodbye to the largest position of the 700 funds monitored by Insider Monkey, worth close to $6.3 million in stock, and Millennium Management, one of the largest hedge funds in the world, was right behind this move, as the fund dropped about $4.7 million worth of shares.
Let’s check out hedge fund activity in other stocks similar to Kennedy-Wilson Holdings Inc (NYSE:KW). We will take a look at TiVo Inc. (NASDAQ:TIVO), Choice Hotels International, Inc. (NYSE:CHH), QTS Realty Trust Inc (NYSE:QTS), and LifePoint Hospitals, Inc. (NASDAQ:LPNT). This group of stocks’ market valuations are similar to KW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TIVO | 22 | 414787 | -3 |
| CHH | 15 | 110466 | 7 |
| QTS | 15 | 101892 | -1 |
| LPNT | 16 | 192333 | -6 |
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $205 million. That figure was $389 million in KW’s case. TiVo Inc. (NASDAQ:TIVO) is the most popular stock in this table. On the other hand Choice Hotels International, Inc. (NYSE:CHH) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Kennedy-Wilson Holdings Inc (NYSE:KW) is even less popular than CHH. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None
