Hedge Funds Are Betting On Kraton Corp (KRA)

The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Kraton Corp (NYSE:KRA) from the perspective of those successful funds.

Kraton Corp (NYSE:KRA) was in 25 hedge funds’ portfolios at the end of the third quarter of 2016. KRA investors should be aware of an increase in enthusiasm from smart money recently. There were 24 hedge funds in our database with KRA holdings at the end of the previous quarter. At the end of this article we will also compare KRA to other stocks including Interface, Inc. (NASDAQ:TILE), TPG Specialty Lending Inc (NYSE:TSLX), and The Spectranetics Corporation (NASDAQ:SPNC) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, let’s go over the fresh action encompassing Kraton Corp (NYSE:KRA).

How are hedge funds trading Kraton Corp (NYSE:KRA)?

Heading into the fourth quarter of 2016, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KRA over the last 5 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.

When looking at the institutional investors followed by Insider Monkey, Brenner West Capital Partners, led by Joshua Kaufman and Craig Nerenberg, holds the biggest position in Kraton Corp (NYSE:KRA). According to regulatory filings, the fund has a $65.1 million position in the stock, comprising 5.8% of its 13F portfolio. Coming in second is Anchor Bolt Capital, led by Robert Polak, which holds a $60.2 million position; 1.8% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism encompass Chuck Royce’s Royce & Associates, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Richard S. Meisenberg’s ACK Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With a general bullishness amongst the heavyweights, some big names have jumped into Kraton Corp (NYSE:KRA) headfirst. Luminus Management, led by Jonathan Barrett and Paul Segal, assembled the largest position in KKraton Corp (NYSE:KRA). According to its latest 13F filing, the fund had $5 million invested in the company at the end of the quarter. Bart Baum’s Ionic Capital Management also made a $2.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Robert Vollero and Gentry T. Beach’s Vollero Beach Capital Partners, David Costen Haley’s HBK Investments, and Charles Paquelet’s Skylands Capital.

Let’s also examine hedge fund activity in other stocks similar to Kraton Corp (NYSE:KRA). We will take a look at Interface, Inc. (NASDAQ:TILE), TPG Specialty Lending Inc (NYSE:TSLX), The Spectranetics Corporation (NASDAQ:SPNC), and Merit Medical Systems, Inc. (NASDAQ:MMSI). This group of stocks’ market caps resemble KRA’s market cap.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $228 million in KRA’s case. The Spectranetics Corporation (NASDAQ:SPNC) is the most popular stock in this table. On the other hand TPG Specialty Lending Inc (NYSE:TSLX) is the least popular one with only 6 bullish hedge fund positions. Kraton Corp (NYSE:KRA) 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. In this regard SPNC might be a better candidate to consider taking a long position in.

Disclosure: none.