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 KLA Corporation (NASDAQ:KLAC).
Is KLA Corporation (NASDAQ:KLAC) ready to rally soon? Prominent investors were getting more optimistic. The number of bullish hedge fund bets inched up by 5 lately. KLA Corporation (NASDAQ:KLAC) was in 45 hedge funds’ portfolios at the end of June. The all time high for this statistic is 46. Our calculations also showed that KLAC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 40 hedge funds in our database with KLAC holdings at the end of March.
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 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 79 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 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.
David Siegel of Two Sigma Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV 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. With all of this in mind we’re going to check out the key hedge fund action regarding KLA Corporation (NASDAQ:KLAC).
Do Hedge Funds Think KLAC Is A Good Stock To Buy Now?
At the end of June, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in KLAC over the last 24 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Alkeon Capital Management was the largest shareholder of KLA Corporation (NASDAQ:KLAC), with a stake worth $487.9 million reported as of the end of June. Trailing Alkeon Capital Management was Arrowstreet Capital, which amassed a stake valued at $208.1 million. AQR Capital Management, Woodline Partners, and Millennium 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 Mondrian Capital allocated the biggest weight to KLA Corporation (NASDAQ:KLAC), around 2.27% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, setting aside 2.15 percent of its 13F equity portfolio to KLAC.
As aggregate interest increased, key hedge funds have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, established the most valuable position in KLA Corporation (NASDAQ:KLAC). Point72 Asset Management had $68.9 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $14.9 million position during the quarter. The other funds with brand new KLAC positions are Ray Dalio’s Bridgewater Associates, Benjamin A. Smith’s Laurion Capital Management, and Brian Ashford-Russell and Tim Woolley’s Polar Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as KLA Corporation (NASDAQ:KLAC) but similarly valued. These stocks are America Movil SAB de CV (NYSE:AMX), América Móvil, S.A.B. de C.V. (NYSE:AMOV), Roper Technologies Inc. (NYSE:ROP), Palantir Technologies Inc. (NYSE:PLTR), Lululemon Athletica inc. (NASDAQ:LULU), Thomson Reuters Corporation (NYSE:TRI), and Johnson Controls International plc (NYSE:JCI). All of these stocks’ market caps are similar to KLAC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMX | 13 | 114474 | -2 |
| AMOV | 1 | 256 | 0 |
| ROP | 41 | 1570401 | -1 |
| PLTR | 26 | 1361219 | -6 |
| LULU | 46 | 952983 | 5 |
| TRI | 27 | 354844 | -1 |
| JCI | 39 | 1270005 | -2 |
| Average | 27.6 | 803455 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $803 million. That figure was $1375 million in KLAC’s case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand América Móvil, S.A.B. de C.V. (NYSE:AMOV) is the least popular one with only 1 bullish hedge fund positions. KLA Corporation (NASDAQ:KLAC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KLAC is 88.2. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Hedge funds were also right about betting on KLAC as the stock returned 28.9% since the end of Q2 (through 11/5) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Kla Corp (NASDAQ:KLAC)
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Disclosure: None. This article was originally published at Insider Monkey.
