We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Korn Ferry (NYSE:KFY) and determine whether hedge funds skillfully traded this stock.
Korn Ferry (NYSE:KFY) shareholders have witnessed an increase in hedge fund interest of late. KFY was in 20 hedge funds’ portfolios at the end of March. There were 19 hedge funds in our database with KFY holdings at the end of the previous quarter. Our calculations also showed that KFY 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.
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.
Cliff Asness of AQR Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a glance at the fresh hedge fund action surrounding Korn Ferry (NYSE:KFY).
What have hedge funds been doing with Korn Ferry (NYSE:KFY)?
At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in KFY over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Korn Ferry (NYSE:KFY) was held by Lakewood Capital Management, which reported holding $22.1 million worth of stock at the end of September. It was followed by Royce & Associates with a $21.5 million position. Other investors bullish on the company included Coliseum Capital, Kerrisdale Capital, and Ariel Investments. In terms of the portfolio weights assigned to each position Coliseum Capital allocated the biggest weight to Korn Ferry (NYSE:KFY), around 4.93% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, designating 3.28 percent of its 13F equity portfolio to KFY.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Lakewood Capital Management, managed by Anthony Bozza, assembled the most outsized position in Korn Ferry (NYSE:KFY). Lakewood Capital Management had $22.1 million invested in the company at the end of the quarter. Christopher Shackelton and Adam Gray’s Coliseum Capital also made a $18.2 million investment in the stock during the quarter. The following funds were also among the new KFY investors: Steven Boyd’s Armistice Capital, Greg Eisner’s Engineers Gate Manager, and Ken Griffin’s Citadel Investment Group.
Let’s now review hedge fund activity in other stocks similar to Korn Ferry (NYSE:KFY). We will take a look at ProAssurance Corporation (NYSE:PRA), Silicon Motion Technology Corp. (NASDAQ:SIMO), Comfort Systems USA, Inc. (NYSE:FIX), and PagerDuty, Inc. (NYSE:PD). All of these stocks’ market caps are closest to KFY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRA | 10 | 124328 | -8 |
| SIMO | 18 | 214067 | 1 |
| FIX | 20 | 71526 | -4 |
| PD | 25 | 54152 | 10 |
| Average | 18.25 | 116018 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $136 million in KFY’s case. PagerDuty, Inc. (NYSE:PD) is the most popular stock in this table. On the other hand ProAssurance Corporation (NYSE:PRA) is the least popular one with only 10 bullish hedge fund positions. Korn Ferry (NYSE:KFY) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately KFY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KFY were disappointed as the stock returned 18.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
