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Did Hedge Funds Make The Right Call On Kohl’s Corporation (KSS) ?

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 Kohl’s Corporation (NYSE:KSS) based on that data and determine whether they were really smart about the stock.

Kohl’s Corporation (NYSE:KSS) was in 26 hedge funds’ portfolios at the end of March. KSS has experienced a decrease in support from the world’s most elite money managers lately. There were 28 hedge funds in our database with KSS positions at the end of the previous quarter. Our calculations also showed that KSS 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s take a gander at the new hedge fund action surrounding Kohl’s Corporation (NYSE:KSS).

How have hedgies been trading Kohl’s Corporation (NYSE:KSS)?

At Q1’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the fourth quarter of 2019. By comparison, 27 hedge funds held shares or bullish call options in KSS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Kohl’s Corporation (NYSE:KSS), which was worth $41.3 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $22.4 million worth of shares. Two Sigma Advisors, Arrowstreet Capital, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Prentice Capital Management allocated the biggest weight to Kohl’s Corporation (NYSE:KSS), around 2.17% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, setting aside 0.28 percent of its 13F equity portfolio to KSS.

Due to the fact that Kohl’s Corporation (NYSE:KSS) has faced falling interest from the smart money, it’s easy to see that there were a few hedgies that elected to cut their full holdings in the first quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management sold off the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling close to $53.7 million in stock, and Lee Ainslie’s Maverick Capital was right behind this move, as the fund dropped about $12.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Kohl’s Corporation (NYSE:KSS). These stocks are UMB Financial Corporation (NASDAQ:UMBF), Alkermes Plc (NASDAQ:ALKS), Teradata Corporation (NYSE:TDC), and MGE Energy, Inc. (NASDAQ:MGEE). This group of stocks’ market valuations resemble KSS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UMBF 15 46125 -4
ALKS 30 509143 -3
TDC 24 171880 -4
MGEE 6 38970 -3
Average 18.75 191530 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $145 million in KSS’s case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand MGE Energy, Inc. (NASDAQ:MGEE) is the least popular one with only 6 bullish hedge fund positions. Kohl’s Corporation (NYSE:KSS) 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 KSS as the stock returned 42.4% 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.