We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Kansas City Southern (NYSE:KSU) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Kansas City Southern (NYSE:KSU) worth your attention right now? The best stock pickers are in a bullish mood. The number of long hedge fund positions increased by 7 recently. Our calculations also showed that KSU isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). KSU was in 40 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 33 hedge funds in our database with KSU holdings at the end of the previous quarter.
In the eyes of most traders, hedge funds are assumed to be worthless, old financial tools of the past. While there are greater than 8000 funds in operation at present, We hone in on the top tier of this club, about 850 funds. These investment experts orchestrate the lion’s share of all hedge funds’ total asset base, and by paying attention to their finest stock picks, Insider Monkey has formulated many investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy outrun 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 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the latest hedge fund action surrounding Kansas City Southern (NYSE:KSU).
How have hedgies been trading Kansas City Southern (NYSE:KSU)?
At Q4’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KSU over the last 18 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.
More specifically, Fisher Asset Management was the largest shareholder of Kansas City Southern (NYSE:KSU), with a stake worth $68.6 million reported as of the end of September. Trailing Fisher Asset Management was Winton Capital Management, which amassed a stake valued at $43.1 million. Interval Partners, Citadel Investment Group, and Columbus Circle Investors 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 Mountain Road Advisors allocated the biggest weight to Kansas City Southern (NYSE:KSU), around 6.25% of its 13F portfolio. Marlowe Partners is also relatively very bullish on the stock, designating 6.08 percent of its 13F equity portfolio to KSU.
As one would reasonably expect, key money managers have been driving this bullishness. Mountain Road Advisors, managed by Gordon W Malin, initiated the most outsized position in Kansas City Southern (NYSE:KSU). Mountain Road Advisors had $16.5 million invested in the company at the end of the quarter. Andrew Sandler’s Sandler Capital Management also initiated a $16.2 million position during the quarter. The following funds were also among the new KSU investors: Richard Chilton’s Chilton Investment Company, Paul Tudor Jones’s Tudor Investment Corp, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Kansas City Southern (NYSE:KSU) but similarly valued. We will take a look at Old Dominion Freight Line (NASDAQ:ODFL), Burlington Stores Inc (NYSE:BURL), Waters Corporation (NYSE:WAT), and Mid America Apartment Communities Inc (NYSE:MAA). All of these stocks’ market caps match KSU’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $625 million. That figure was $415 million in KSU’s case. Burlington Stores Inc (NYSE:BURL) is the most popular stock in this table. On the other hand Mid America Apartment Communities Inc (NYSE:MAA) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Kansas City Southern (NYSE:KSU) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on KSU, though not to the same extent, as the stock returned -25.2% during the first quarter (through March 16th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.