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Hedge Funds Aren’t Crazy About Keane Group, Inc. (FRAC) Anymore

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Is Keane Group, Inc. (NYSE:FRAC) the right pick for your portfolio? Hedge funds are becoming less confident. The number of bullish hedge fund bets were trimmed by 1 lately. Our calculations also showed that FRAC isn’t among the 30 most popular stocks among hedge funds. FRAC was in 18 hedge funds’ portfolios at the end of the third quarter of 2018. There were 19 hedge funds in our database with FRAC holdings at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

OMEGA ADVISORS

We’re going to take a gander at the latest hedge fund action surrounding Keane Group, Inc. (NYSE:FRAC).

What does the smart money think about Keane Group, Inc. (NYSE:FRAC)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2018. On the other hand, there were a total of 15 hedge funds with a bullish position in FRAC at the beginning of this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

FRAC_dec2018

Among these funds, Cerberus Capital Management held the most valuable stake in Keane Group, Inc. (NYSE:FRAC), which was worth $467 million at the end of the third quarter. On the second spot was Omega Advisors which amassed $57.5 million worth of shares. Moreover, Millennium Management, Fisher Asset Management, and Citadel Investment Group were also bullish on Keane Group, Inc. (NYSE:FRAC), allocating a large percentage of their portfolios to this stock.

Because Keane Group, Inc. (NYSE:FRAC) has witnessed bearish sentiment from hedge fund managers, logic holds that there is a sect of fund managers who were dropping their full holdings in the third quarter. It’s worth mentioning that Mark Kingdon’s Kingdon Capital cut the largest investment of the 700 funds followed by Insider Monkey, worth about $8.1 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $0.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Keane Group, Inc. (NYSE:FRAC). These stocks are MaxLinear, Inc. (NYSE:MXL), Mitel Networks Corporation (NASDAQ:MITL), Washington Prime Group Inc. (NYSE:WPG), and CSG Systems International, Inc. (NASDAQ:CSGS). This group of stocks’ market values are similar to FRAC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MXL 4 37671 -4
MITL 27 305555 -3
WPG 10 8309 -1
CSGS 14 150432 -1
Average 13.75 125492 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $648 million in FRAC’s case. Mitel Networks Corporation (NASDAQ:MITL) is the most popular stock in this table. On the other hand MaxLinear, Inc. (NYSE:MXL) is the least popular one with only 4 bullish hedge fund positions. Keane Group, Inc. (NYSE:FRAC) 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 MITL might be a better candidate to consider a long position.

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

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