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Hedge Funds Have Never Been This Bullish On Keane Group, Inc. (FRAC)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Keane Group, Inc. (NYSE:FRAC) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is Keane Group, Inc. (NYSE:FRAC) a healthy stock for your portfolio? The best stock pickers are taking an optimistic view. The number of bullish hedge fund positions rose by 2 recently. Our calculations also showed that frac isn’t among the 30 most popular stocks among hedge funds. FRAC was in 28 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with FRAC holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Fisher FISHER ASSET MANAGEMENT

Let’s take a glance at the key hedge fund action encompassing Keane Group, Inc. (NYSE:FRAC).

How are hedge funds trading Keane Group, Inc. (NYSE:FRAC)?

At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in FRAC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with FRAC Positions

Of the funds tracked by Insider Monkey, Stephen Feinberg’s Cerberus Capital Management has the biggest position in Keane Group, Inc. (NYSE:FRAC), worth close to $423.4 million, corresponding to 40.3% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $30 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions include Israel Englander’s Millennium Management, Ken Fisher’s Fisher Asset Management and Daniel Gold’s QVT Financial.

As one would reasonably expect, key money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Keane Group, Inc. (NYSE:FRAC). Arrowstreet Capital had $5 million invested in the company at the end of the quarter. Robert Polak’s Anchor Bolt Capital also made a $2.9 million investment in the stock during the quarter. The following funds were also among the new FRAC investors: Thiru Ramakrishnan’s TVR Capital and Hoon Kim’s Quantinno Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Keane Group, Inc. (NYSE:FRAC). We will take a look at Viad Corp (NYSE:VVI), At Home Group Inc. (NYSE:HOME), Bitauto Holdings Limited (NYSE:BITA), and PPDAI Group Inc. (NYSE:PPDF). This group of stocks’ market valuations resemble FRAC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VVI 13 145979 -2
HOME 32 247769 8
BITA 7 11115 0
PPDF 12 8046 6
Average 16 103227 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $555 million in FRAC’s case. At Home Group Inc. (NYSE:HOME) is the most popular stock in this table. On the other hand Bitauto Holdings Limited (NYSE:BITA) is the least popular one with only 7 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately FRAC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FRAC were disappointed as the stock returned -30.5% during the same period 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 13 of these stocks already outperformed the market so far in Q2.

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

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