Is Korn Ferry (NYSE:KFY) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Korn Ferry (NYSE:KFY) a safe investment right now? Prominent investors are in an optimistic mood. The number of bullish hedge fund positions improved by 1 in recent months. Our calculations also showed that KFY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the latest hedge fund action surrounding Korn Ferry (NYSE:KFY).
What have hedge funds been doing with Korn Ferry (NYSE:KFY)?
At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in KFY over the last 17 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.
Among these funds, GLG Partners held the most valuable stake in Korn Ferry (NYSE:KFY), which was worth $22.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $21.4 million worth of shares. Renaissance Technologies, Royce & Associates, and Ariel Investments 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 Algert Coldiron Investors allocated the biggest weight to Korn Ferry (NYSE:KFY), around 0.76% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, dishing out 0.25 percent of its 13F equity portfolio to KFY.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Echo Street Capital Management, managed by Greg Poole, created the most valuable position in Korn Ferry (NYSE:KFY). Echo Street Capital Management had $14.9 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $0.9 million position during the quarter. The other funds with brand new KFY positions are David Harding’s Winton Capital Management, Claes Fornell’s CSat Investment Advisory, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Korn Ferry (NYSE:KFY) but similarly valued. These stocks are First Midwest Bancorp Inc (NASDAQ:FMBI), Avis Budget Group Inc. (NASDAQ:CAR), Adient plc (NYSE:ADNT), and Otter Tail Corporation (NASDAQ:OTTR). This group of stocks’ market values are similar to KFY’s market value.
|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 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $424 million. That figure was $169 million in KFY’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand First Midwest Bancorp Inc (NASDAQ:FMBI) is the least popular one with only 14 bullish hedge fund positions. Korn Ferry (NYSE:KFY) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately KFY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KFY were disappointed as the stock returned 1.7% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.