Were Hedge Funds Right About Shunning Kennedy-Wilson Holdings Inc (KW)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtKennedy-Wilson Holdings Inc (NYSE:KW) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Kennedy-Wilson Holdings Inc (NYSE:KW) was in 22 hedge funds’ portfolios at the end of March. KW investors should pay attention to an increase in hedge fund interest lately. There were 17 hedge funds in our database with KW holdings at the end of the previous quarter. Our calculations also showed that KW isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 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 58 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.

Prem Watsa of Fairfax Financial Holdings

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s take a look at the latest hedge fund action surrounding Kennedy-Wilson Holdings Inc (NYSE:KW).

How have hedgies been trading Kennedy-Wilson Holdings Inc (NYSE:KW)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KW over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in Kennedy-Wilson Holdings Inc (NYSE:KW) was held by Fairfax Financial Holdings, which reported holding $178 million worth of stock at the end of September. It was followed by Elkhorn Partners with a $58.5 million position. Other investors bullish on the company included Royce & Associates, Sprott Asset Management, and ACK Asset Management. In terms of the portfolio weights assigned to each position Elkhorn Partners allocated the biggest weight to Kennedy-Wilson Holdings Inc (NYSE:KW), around 48.58% of its 13F portfolio. Fairfax Financial Holdings is also relatively very bullish on the stock, designating 12.32 percent of its 13F equity portfolio to KW.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. ACK Asset Management, managed by Richard S. Meisenberg, established the biggest position in Kennedy-Wilson Holdings Inc (NYSE:KW). ACK Asset Management had $6.7 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Charles Paquelet’s Skylands Capital, and Brandon Haley’s Holocene Advisors.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Kennedy-Wilson Holdings Inc (NYSE:KW) but similarly valued. We will take a look at Acushnet Holdings Corp. (NYSE:GOLF), Park Hotels & Resorts Inc. (NYSE:PK), IBERIABANK Corporation (NASDAQ:IBKC), and Frontline Ltd (NYSE:FRO). This group of stocks’ market caps match KW’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $308 million in KW’s case. IBERIABANK Corporation (NASDAQ:IBKC) is the most popular stock in this table. On the other hand Acushnet Holdings Corp. (NYSE:GOLF) is the least popular one with only 12 bullish hedge fund positions. Kennedy-Wilson Holdings Inc (NYSE:KW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately KW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); KW investors were disappointed as the stock returned 15.1% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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