Were Hedge Funds Right About Dumping Knowles Corp (KN)?

The Insider Monkey team has completed processing the quarterly 13F filings for the March quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Knowles Corp (NYSE:KN).

Knowles Corp (NYSE:KN) was in 18 hedge funds’ portfolios at the end of March. The all time high for this statistic is 29. KN has seen a decrease in hedge fund sentiment in recent months. There were 27 hedge funds in our database with KN holdings at the end of December. Our calculations also showed that KN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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 E. Shaw of D.E. Shaw

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 take a look at the new hedge fund action surrounding Knowles Corp (NYSE:KN).

Do Hedge Funds Think KN Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KN over the last 23 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ariel Investments, managed by John W. Rogers, holds the number one position in Knowles Corp (NYSE:KN). Ariel Investments has a $99.2 million position in the stock, comprising 1% of its 13F portfolio. The second largest stake is held by Fisher Asset Management, managed by Ken Fisher, which holds a $55.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish comprise D. E. Shaw’s D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to Knowles Corp (NYSE:KN), around 0.98% of its 13F portfolio. Falcon Edge Capital is also relatively very bullish on the stock, dishing out 0.8 percent of its 13F equity portfolio to KN.

Because Knowles Corp (NYSE:KN) has faced declining sentiment from the smart money, it’s safe to say that there were a few fund managers that elected to cut their full holdings by the end of the first quarter. It’s worth mentioning that Mark Coe’s Intrinsic Edge Capital said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $11.8 million in stock. Steve Cohen’s fund, Point72 Asset Management, also said goodbye to its stock, about $5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 9 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Knowles Corp (NYSE:KN). We will take a look at Equinox Gold Corp. (NYSE:EQX), Hostess Brands, Inc. (NASDAQ:TWNK), Sumo Logic, Inc. (NASDAQ:SUMO), The Macerich Company (NYSE:MAC), Enviva Partners, LP (NYSE:EVA), Inovio Pharmaceuticals Inc (NYSE:INO), and Urban Edge Properties (NYSE:UE). All of these stocks’ market caps are similar to KN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $300 million in KN’s case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) is the least popular one with only 7 bullish hedge fund positions. Knowles Corp (NYSE:KN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KN is 35. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately KN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KN were disappointed as the stock returned -8% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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