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Did Hedge Funds Make The Right Call On Knight-Swift Transportation Holdings Inc. (KNX) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Knight-Swift Transportation Holdings Inc. (NYSE:KNX) and determine whether hedge funds had an edge regarding this stock.

Knight-Swift Transportation Holdings Inc. (NYSE:KNX) was in 32 hedge funds’ portfolios at the end of March. KNX investors should be aware of an increase in activity from the world’s largest hedge funds recently. There were 26 hedge funds in our database with KNX positions at the end of the previous quarter. Our calculations also showed that KNX 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.

In the eyes of most traders, hedge funds are seen as underperforming, outdated investment vehicles of years past. While there are over 8000 funds trading at the moment, We choose to focus on the bigwigs of this club, around 850 funds. These hedge fund managers manage bulk of all hedge funds’ total asset base, and by shadowing their first-class investments, Insider Monkey has deciphered various investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Steven Cohen

Steven Cohen of Point72 Asset Management

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. With all of this in mind let’s analyze the fresh hedge fund action surrounding Knight-Swift Transportation Holdings Inc. (NYSE:KNX).

How are hedge funds trading Knight-Swift Transportation Holdings Inc. (NYSE:KNX)?

Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in KNX a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

The largest stake in Knight-Swift Transportation Holdings Inc. (NYSE:KNX) was held by Citadel Investment Group, which reported holding $120.6 million worth of stock at the end of September. It was followed by Adage Capital Management with a $49.6 million position. Other investors bullish on the company included Alyeska Investment Group, Impala Asset Management, and Interval Partners. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Knight-Swift Transportation Holdings Inc. (NYSE:KNX), around 4.39% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, dishing out 3.12 percent of its 13F equity portfolio to KNX.

Now, key money managers were leading the bulls’ herd. Scopus Asset Management, managed by Alexander Mitchell, initiated the most outsized position in Knight-Swift Transportation Holdings Inc. (NYSE:KNX). Scopus Asset Management had $16.2 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also initiated a $9 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Knight-Swift Transportation Holdings Inc. (NYSE:KNX) but similarly valued. We will take a look at Gentex Corporation (NASDAQ:GNTX), UGI Corp (NYSE:UGI), Genpact Limited (NYSE:G), and National Retail Properties, Inc. (NYSE:NNN). All of these stocks’ market caps are similar to KNX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GNTX 37 478532 5
UGI 27 253339 4
G 34 335413 -3
NNN 19 62007 -4
Average 29.25 282323 0.5

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 $282 million. That figure was $353 million in KNX’s case. Gentex Corporation (NASDAQ:GNTX) is the most popular stock in this table. On the other hand National Retail Properties, Inc. (NYSE:NNN) is the least popular one with only 19 bullish hedge fund positions. Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is not the most popular stock in this group but hedge fund interest is still above 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 but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on KNX as the stock returned 27.4% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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