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Did Hedge Funds Make The Right Call On Kirkland Lake Gold Ltd. (KL) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Kirkland Lake Gold Ltd. (NYSE:KL) based on that data and determine whether they were really smart about the stock.

Is Kirkland Lake Gold Ltd. (NYSE:KL) worth your attention right now? The best stock pickers were taking an optimistic view. The number of bullish hedge fund bets increased by 4 recently. Our calculations also showed that KL 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). KL was in 28 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with KL positions at the end of the previous quarter.

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.

Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the fresh hedge fund action surrounding Kirkland Lake Gold Ltd. (NYSE:KL).

How are hedge funds trading Kirkland Lake Gold Ltd. (NYSE:KL)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KL over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in Kirkland Lake Gold Ltd. (NYSE:KL) was held by Renaissance Technologies, which reported holding $136.2 million worth of stock at the end of September. It was followed by Sprott Asset Management with a $72.7 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Paulson & Co. In terms of the portfolio weights assigned to each position Greywolf Capital Management allocated the biggest weight to Kirkland Lake Gold Ltd. (NYSE:KL), around 24.14% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, dishing out 6.66 percent of its 13F equity portfolio to KL.

Now, some big names were breaking ground themselves. Paulson & Co, managed by John Paulson, assembled the biggest position in Kirkland Lake Gold Ltd. (NYSE:KL). Paulson & Co had $44.2 million invested in the company at the end of the quarter. Peter Franklin Palmedo’s Sun Valley Gold also made a $20.5 million investment in the stock during the quarter. The following funds were also among the new KL investors: Israel Englander’s Millennium Management, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, and Joe Milano’s Greenhouse Funds.

Let’s check out hedge fund activity in other stocks similar to Kirkland Lake Gold Ltd. (NYSE:KL). We will take a look at Huntington Bancshares Incorporated (NASDAQ:HBAN), PerkinElmer, Inc. (NYSE:PKI), Autohome Inc (NYSE:ATHM), and Carvana Co. (NYSE:CVNA). This group of stocks’ market valuations are similar to KL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HBAN 29 85788 4
PKI 21 647867 1
ATHM 15 708219 2
CVNA 52 1819908 -1
Average 29.25 815446 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $815 million. That figure was $552 million in KL’s case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Autohome Inc (NYSE:ATHM) is the least popular one with only 15 bullish hedge fund positions. Kirkland Lake Gold Ltd. (NYSE:KL) is not the least popular stock in this group but hedge fund interest is still below average. 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 still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on KL as the stock returned 39.8% during the second quarter and outperformed the market by an even larger margin.

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