Hedge Fund Sentiment Is Stagnant On Kilroy Realty Corp (KRC)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Kilroy Realty Corp (NYSE:KRC) and determine whether the smart money was really smart about this stock.

Hedge fund interest in Kilroy Realty Corp (NYSE:KRC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that KRC 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). At the end of this article we will also compare KRC to other stocks including Omega Healthcare Investors Inc (NYSE:OHI), OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), and Newell Brands Inc. (NASDAQ:NWL) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. Now let’s take a gander at the key hedge fund action encompassing Kilroy Realty Corp (NYSE:KRC).

Hedge fund activity in Kilroy Realty Corp (NYSE:KRC)

At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in KRC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, D1 Capital Partners was the largest shareholder of Kilroy Realty Corp (NYSE:KRC), with a stake worth $241.8 million reported as of the end of September. Trailing D1 Capital Partners was Long Pond Capital, which amassed a stake valued at $57.6 million. Balyasny Asset Management, Citadel Investment Group, 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 Long Pond Capital allocated the biggest weight to Kilroy Realty Corp (NYSE:KRC), around 2.27% of its 13F portfolio. D1 Capital Partners is also relatively very bullish on the stock, designating 1.8 percent of its 13F equity portfolio to KRC.

Judging by the fact that Kilroy Realty Corp (NYSE:KRC) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of funds that elected to cut their full holdings last quarter. Interestingly, Jeffrey Altman’s Owl Creek Asset Management cut the largest stake of the “upper crust” of funds watched by Insider Monkey, worth close to $18.9 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also cut its stock, about $2.8 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Kilroy Realty Corp (NYSE:KRC) but similarly valued. We will take a look at Omega Healthcare Investors Inc (NYSE:OHI), OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), Newell Brands Inc. (NASDAQ:NWL), Lamar Advertising Company (REIT) (NASDAQ:LAMR), The Interpublic Group of Companies Inc (NYSE:IPG), American Airlines Group Inc (NASDAQ:AAL), and RealPage, Inc. (NASDAQ:RP). This group of stocks’ market caps resemble KRC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OHI 23 107776 6
OCFT 5 8062 2
NWL 33 1244198 9
LAMR 44 419738 10
IPG 22 501395 1
AAL 47 436618 11
RP 39 739694 10
Average 30.4 493926 7

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $494 million. That figure was $411 million in KRC’s case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) is the least popular one with only 5 bullish hedge fund positions. Kilroy Realty Corp (NYSE:KRC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KRC is 28.1. 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. This is a slightly negative signal and 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately KRC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); KRC investors were disappointed as the stock returned -10.6% in the third quarter 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 most of these stocks already outperformed the market in 2020.

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