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Hedge Funds Aren’t Done Betting On Kansas City Southern (KSU)

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 Kansas City Southern (NYSE:KSU) and determine whether the smart money was really smart about this stock.

Kansas City Southern (NYSE:KSU) investors should be aware of an increase in hedge fund interest recently. Kansas City Southern (NYSE:KSU) was in 47 hedge funds’ portfolios at the end of June. The all time high for this statistics is 45. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 45 hedge funds in our database with KSU positions at the end of the first quarter. Our calculations also showed that KSU 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.

If you’d ask most shareholders, hedge funds are perceived as underperforming, outdated investment vehicles of yesteryear. While there are greater than 8000 funds in operation today, Our experts look at the elite of this club, about 850 funds. It is estimated that this group of investors command the lion’s share of the hedge fund industry’s total asset base, and by keeping track of their best stock picks, Insider Monkey has discovered several investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year 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 .

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s go over the key hedge fund action encompassing Kansas City Southern (NYSE:KSU).

Hedge fund activity in Kansas City Southern (NYSE:KSU)

At Q2’s end, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in KSU a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in Kansas City Southern (NYSE:KSU). Fisher Asset Management has a $75.4 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Chilton Investment Company, managed by Richard Chilton, which holds a $70.9 million position; 2.3% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions encompass Jonathan Barrett and Paul Segal’s Luminus Management, Robert Bishop’s Impala Asset Management and Principal Global Investors’s Columbus Circle Investors. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Kansas City Southern (NYSE:KSU), around 6.84% of its 13F portfolio. Mountain Road Advisors is also relatively very bullish on the stock, setting aside 6.56 percent of its 13F equity portfolio to KSU.

As aggregate interest increased, some big names have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, created the biggest position in Kansas City Southern (NYSE:KSU). Moore Global Investments had $19.8 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also made a $1.7 million investment in the stock during the quarter. The following funds were also among the new KSU investors: Greg Poole’s Echo Street Capital Management, Anand Parekh’s Alyeska Investment Group, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks similar to Kansas City Southern (NYSE:KSU). These stocks are Jack Henry & Associates, Inc. (NASDAQ:JKHY), Roku, Inc. (NASDAQ:ROKU), Boston Properties, Inc. (NYSE:BXP), EPAM Systems Inc (NYSE:EPAM), Teradyne, Inc. (NASDAQ:TER), Dover Corporation (NYSE:DOV), and Rollins, Inc. (NYSE:ROL). All of these stocks’ market caps are similar to KSU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JKHY 31 276056 4
ROKU 41 450808 6
BXP 36 539228 7
EPAM 28 482887 1
TER 34 1354430 6
DOV 40 683970 9
ROL 29 577262 4
Average 34.1 623520 5.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $624 million. That figure was $503 million in KSU’s case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand EPAM Systems Inc (NYSE:EPAM) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Kansas City Southern (NYSE:KSU) is more popular among hedge funds. Our overall hedge fund sentiment score for KSU is 87. 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 returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on KSU as the stock returned 21.9% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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