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Hedge Funds Have Never Been This Bullish On FS KKR Capital Corp. (FSK)

We at Insider Monkey have gone over 752 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of FS KKR Capital Corp. (NYSE:FSK) based on that data.

FS KKR Capital Corp. (NYSE:FSK) has experienced an increase in hedge fund sentiment lately. FSK was in 22 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with FSK positions at the end of the previous quarter. Our calculations also showed that FSK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken Griffin CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

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 analyze the fresh hedge fund action surrounding FS KKR Capital Corp. (NYSE:FSK).

What does smart money think about FS KKR Capital Corp. (NYSE:FSK)?

Heading into the fourth quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FSK over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Carl Goldsmith and Scott Klein’s Beach Point Capital Management has the biggest position in FS KKR Capital Corp. (NYSE:FSK), worth close to $106.9 million, corresponding to 41% of its total 13F portfolio. On Beach Point Capital Management’s heels is HBK Investments, managed by David Costen Haley, which holds a $36.7 million position; 0.7% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish comprise Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group and David M. Knott’s Dorset Management. In terms of the portfolio weights assigned to each position Beach Point Capital Management allocated the biggest weight to FS KKR Capital Corp. (NYSE:FSK), around 41% of its 13F portfolio. Almitas Capital is also relatively very bullish on the stock, setting aside 6.87 percent of its 13F equity portfolio to FSK.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Dorset Management, managed by David M. Knott, initiated the biggest position in FS KKR Capital Corp. (NYSE:FSK). Dorset Management had $8.9 million invested in the company at the end of the quarter. Steve Pei’s Gratia Capital also initiated a $2.5 million position during the quarter. The other funds with brand new FSK positions are Matthew Drapkin and Steven R. Becker’s Becker Drapkin Management, William Michaelcheck’s Mariner Investment Group, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as FS KKR Capital Corp. (NYSE:FSK) but similarly valued. These stocks are Omnicell, Inc. (NASDAQ:OMCL), HMS Holdings Corp. (NASDAQ:HMSY), Energizer Holdings, Inc. (NYSE:ENR), and KB Home (NYSE:KBH). This group of stocks’ market valuations match FSK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OMCL 11 102788 -7
HMSY 21 126466 0
ENR 17 214912 0
KBH 26 572848 9
Average 18.75 254254 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $254 million. That figure was $212 million in FSK’s case. KB Home (NYSE:KBH) is the most popular stock in this table. On the other hand Omnicell, Inc. (NASDAQ:OMCL) is the least popular one with only 11 bullish hedge fund positions. FS KKR Capital Corp. (NYSE:FSK) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on FSK, though not to the same extent, as the stock returned 9.1% during the first two months of the fourth quarter and outperformed the market as well.

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

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