Was The Smart Money Right About Crowding Into Kohl’s Corporation (KSS)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Kohl’s Corporation (NYSE:KSS)? The smart money sentiment can provide an answer to this question.

Kohl’s Corporation (NYSE:KSS) has seen an increase in enthusiasm from smart money in recent months. Kohl’s Corporation (NYSE:KSS) was in 42 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 26 hedge funds in our database with KSS positions at the end of the first quarter. Our calculations also showed that KSS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s analyze the recent hedge fund action regarding Kohl’s Corporation (NYSE:KSS).

How have hedgies been trading Kohl’s Corporation (NYSE:KSS)?

At the end of the second quarter, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 62% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KSS over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the largest position in Kohl’s Corporation (NYSE:KSS), worth close to $72 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $40.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Ken Griffin’s Citadel Investment Group, D. E. Shaw’s D E Shaw and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Stormborn Capital Management allocated the biggest weight to Kohl’s Corporation (NYSE:KSS), around 3.53% of its 13F portfolio. Ellington is also relatively very bullish on the stock, designating 1.31 percent of its 13F equity portfolio to KSS.

Consequently, specific money managers have jumped into Kohl’s Corporation (NYSE:KSS) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized position in Kohl’s Corporation (NYSE:KSS). Balyasny Asset Management had $20.5 million invested in the company at the end of the quarter. Steven Boyd’s Armistice Capital also initiated a $15.3 million position during the quarter. The other funds with new positions in the stock are Louis Bacon’s Moore Global Investments, Kerr Neilson’s Platinum Asset Management, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.

Let’s now review hedge fund activity in other stocks similar to Kohl’s Corporation (NYSE:KSS). We will take a look at Brooks Automation, Inc. (NASDAQ:BRKS), AVITA Therapeutics, Inc. (NASDAQ:RCEL), Xerox Holdings Corporation (NYSE:XRX), Cohen & Steers, Inc. (NYSE:CNS), Energizer Holdings, Inc. (NYSE:ENR), SVMK Inc. (NASDAQ:SVMK), and Stifel Financial Corp. (NYSE:SF). This group of stocks’ market caps resemble KSS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.7 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $337 million in KSS’s case. Xerox Holdings Corporation (NYSE:XRX) is the most popular stock in this table. On the other hand AVITA Therapeutics, Inc. (NASDAQ:RCEL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Kohl’s Corporation (NYSE:KSS) is more popular among hedge funds. Our overall hedge fund sentiment score for KSS is 90. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on KSS, though not to the same extent, as the stock returned 15.4% since the end of June (through October 23rd) and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.