Is KongZhong Corporation(ADR) (KZ) Going to Burn These Hedge Funds?

At Insider Monkey we follow around 730 of the best-performing investors and even though many of them lost money in the last several months, the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.

Is KongZhong Corporation(ADR) (NASDAQ:KZ) the right investment to pursue these days? The best stock pickers are selling. The number of bullish hedge fund bets were trimmed by 3 in recent months. At the end of this article we will also compare KZ to other stocks including Era Group Inc (NYSE:ERA), Adamas Pharmaceuticals Inc (NASDAQ:ADMS), and C1 Financial Inc (NYSE:BNK) to get a better sense of its popularity.

If you’d ask most traders, hedge funds are seen as worthless, outdated investment tools of the past. While there are over an 8000 funds trading today, We look at the masters of this group, about 700 funds. It is estimated that this group of investors administer the majority of the smart money’s total asset base, and by watching their top investments, Insider Monkey has identified many investment strategies that have historically outstripped Mr. Market. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, we’re going to review the fresh action encompassing KongZhong Corporation(ADR) (NASDAQ:KZ).

How are hedge funds trading KongZhong Corporation(ADR) (NASDAQ:KZ)?

Heading into Q4, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -43% from the second quarter. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Eric Semler’s TCS Capital Management has the number one position in KongZhong Corporation(ADR) (NASDAQ:KZ), worth close to $3.3 million, accounting for 2.6% of its total 13F portfolio. The second most bullish fund manager is Michael Platt and William Reeves of BlueCrest Capital Mgmt., with a $2.8 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions include D. E. Shaw’s D E Shaw, and Jacob Gottlieb’s Visium Asset Management.

Because KongZhong Corporation(ADR) (NASDAQ:KZ) has experienced bearish sentiment from the smart money, logic holds that there exists a select few funds that slashed their entire stakes in the third quarter. It’s worth mentioning that Frank Slattery’s Symmetry Peak Management dumped the biggest position of the 700 funds watched by Insider Monkey, totaling about $3.1 million in call options. Frank Slattery’s fund, Symmetry Peak Management, also dumped its call options, about $1.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as KongZhong Corporation(ADR) (NASDAQ:KZ) but similarly valued. These stocks are Era Group Inc (NYSE:ERA), Adamas Pharmaceuticals Inc (NASDAQ:ADMS), C1 Financial Inc (NYSE:BNK), and Boingo Wireless Inc (NASDAQ:WIFI). This group of stocks’ market values are closest to KZ’s market value.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $6 million in KZ’s case. Boingo Wireless Inc (NASDAQ:WIFI) is the most popular stock in this table. On the other hand C1 Financial Inc (NYSE:BNK) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks KongZhong Corporation(ADR) (NASDAQ:KZ) is as less popular as BNK. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.