Is Kennametal Inc. (KMT) Going to Burn These Hedge Funds?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Is Kennametal Inc. (NYSE:KMT) an excellent investment now? Prominent investors are becoming more confident. The number of long hedge fund positions increased by 4 lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Anixter International Inc. (NYSE:AXE), M/A-COM Technology Solutions Holdings (NASDAQ:MTSI), and Triumph Group Inc (NYSE:TGI) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, let’s review the latest action surrounding Kennametal Inc. (NYSE:KMT).

What does the smart money think about Kennametal Inc. (NYSE:KMT)?

Heading into the fourth quarter of 2016, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a jump of 20% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ariel Investments, managed by John W. Rogers, holds the number one position in Kennametal Inc. (NYSE:KMT). According to regulatory filings, the ufnd has a $271 million position in the stock, comprising 3.3% of its 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $32.1 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism encompass Israel Englander’s Millennium Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Steve Cohen’s Point72 Asset Management.

Consequently, specific money managers have jumped into Kennametal Inc. (NYSE:KMT) headfirst. Adage Capital Management, run by Phill Gross and Robert Atchinson, assembled the biggest position in Kennametal Inc. (NYSE:KMT). The fund reportedly had $29.8 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $27.3 million position during the quarter. The other funds with new positions in the stock are Alexander Mitchell’s Scopus Asset Management, Dmitry Balyasny’s Balyasny Asset Management, and Jonathan Barrett and Paul Segal’s Luminus Management.

Let’s check out hedge fund activity in other stocks similar to Kennametal Inc. (NYSE:KMT). We will take a look at Anixter International Inc. (NYSE:AXE), M/A-COM Technology Solutions Holdings (NASDAQ:MTSI), Triumph Group Inc (NYSE:TGI), and ExlService Holdings, Inc. (NASDAQ:EXLS). This group of stocks’ market caps resemble KMT’s market cap.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was an impressive $563 million in KMT’s case. Anixter International Inc. (NYSE:AXE) is the most popular stock in this table. On the other hand ExlService Holdings, Inc. (NASDAQ:EXLS) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Kennametal Inc. (NYSE:KMT) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: none.