Do These Hedge Funds Regret Selling KKR & Co Inc. (KKR)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to KKR & Co Inc. (NYSE:KKR) changed recently.

Is KKR & Co Inc. (NYSE:KKR) a healthy stock for your portfolio? Prominent investors were becoming less hopeful. The number of long hedge fund positions were trimmed by 3 lately. KKR & Co Inc. (NYSE:KKR) was in 45 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 56. Our calculations also showed that KKR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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In the eyes of most investors, hedge funds are perceived as slow, outdated investment vehicles of years past. While there are more than 8000 funds in operation today, Our researchers hone in on the upper echelon of this club, approximately 850 funds. These investment experts direct bulk of the smart money’s total capital, and by shadowing their finest picks, Insider Monkey has brought to light a few investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped 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 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

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 quadrupled 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to check out the recent hedge fund action encompassing KKR & Co Inc. (NYSE:KKR).

How have hedgies been trading KKR & Co Inc. (NYSE:KKR)?

At Q2’s end, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in KKR over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Jeffrey Ubben’s ValueAct Capital has the largest position in KKR & Co Inc. (NYSE:KKR), worth close to $1.3896 billion, comprising 15.9% of its total 13F portfolio. The second most bullish fund manager is Charles Akre of Akre Capital Management, with a $454.6 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions comprise Ric Dillon’s Diamond Hill Capital, John Armitage’s Egerton Capital Limited and John W. Rogers’s Ariel Investments. In terms of the portfolio weights assigned to each position Blacksheep Fund Management allocated the biggest weight to KKR & Co Inc. (NYSE:KKR), around 26.23% of its 13F portfolio. ValueAct Capital is also relatively very bullish on the stock, setting aside 15.91 percent of its 13F equity portfolio to KKR.

Because KKR & Co Inc. (NYSE:KKR) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedge funds who sold off their entire stakes by the end of the second quarter. Intriguingly, Jeffrey Altman’s Owl Creek Asset Management cut the biggest stake of all the hedgies followed by Insider Monkey, totaling about $22.9 million in stock. Eric Schneider’s fund, OCO Capital Partners, also sold off its stock, about $18.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks similar to KKR & Co Inc. (NYSE:KKR). We will take a look at Datadog, Inc. (NASDAQ:DDOG), Hormel Foods Corporation (NYSE:HRL), PACCAR Inc (NASDAQ:PCAR), AFLAC Incorporated (NYSE:AFL), Suncor Energy Inc. (NYSE:SU), Sirius XM Holdings Inc (NASDAQ:SIRI), and Cummins Inc. (NYSE:CMI). This group of stocks’ market values are similar to KKR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DDOG 57 2363237 13
HRL 27 440889 -1
PCAR 30 244385 -8
AFL 34 588093 2
SU 29 845050 -1
SIRI 42 1136784 6
CMI 38 358670 4
Average 36.7 853873 2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.7 hedge funds with bullish positions and the average amount invested in these stocks was $854 million. That figure was $3340 million in KKR’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 27 bullish hedge fund positions. KKR & Co Inc. (NYSE:KKR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KKR is 56.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on KKR as the stock returned 21.6% since the end of Q2 (through 10/23) 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.