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Why Are Hedge Funds Dumping Keysight Technologies (KEYS)?

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Keysight Technologies Inc (NYSE:KEYS) shareholders have witnessed a decrease in hedge fund sentiment lately. Nearly one out of 5 hedge funds with KEYS positions dumped their entire stake during the fourth quarter. 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 decline in popularity but it may still be more popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Manhattan Associates, Inc. (NASDAQ:MANH), Biomed Realty Trust Inc (NYSE:BMR), and StanCorp Financial Group, Inc. (NYSE:SFG) to gather more data points.

Keysight Technologies showed up on our radar about a year ago when Greenlight Capital wrote the following about the stock in its investor letter:

We established a position in Keysight Technologies (KEYS), a maker of electronic test and measurement equipment. The business was spun out of Agilent (A) in November 2014. We believe Agilent treated KEYS as a cash flow source to fund other businesses. We expect that as an independent company starting with an almost unlevered balance sheet, KEYS will have the flexibility to invest in unexploited growth initiatives and make better R&D and capital allocation decisions. We believe the Street doesn’t fully appreciate KEYS’ prospects. We purchases our position at an average price of $30.54, or about 12x near-term EPS, which doesn’t yet benefit from the investment spend. The shares ended the quarter at $33.77.”

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Hedge funds are usually attracted to spin-off stocks because historically they outperformed the market by double digits annually. These stocks outperform the market mainly because their managements are usually incentivized and focused to pursue revenue and profit opportunities that weren’t among their parent companies’ priority list. It seems like that’s the reason why David Einhorn initially invested in the stock. By the way, Greenlight didn’t lose money from this investment as it sold its stake during the second half of 2015. Today Keysight Technologies trade at $27. The company reported declining revenues, profits, and cash flow in its latest earnings announcement.

Let’s first take a glance at the key hedge fund action surrounding Keysight Technologies Inc (NYSE:KEYS) and then we will try to explain why the stock is experiencing negative sentiment.

Hedge fund activity in Keysight Technologies Inc (NYSE:KEYS)

Heading into 2016, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the third quarter. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, D E Shaw, managed by D. E. Shaw, holds the most valuable position in Keysight Technologies Inc (NYSE:KEYS). D E Shaw has a $69.2 million position in the stock, comprising 0.1% of its 13F portfolio. On D E Shaw’s heels is Renaissance Technologies, managed by Jim Simons, which holds a $21.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish include Cliff Asness’s AQR Capital Management, Ric Dillon’s Diamond Hill Capital and Israel Englander’s Millennium Management.

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