At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards KNOT Offshore Partners LP (NYSE:KNOP).
KNOT Offshore Partners LP (NYSE:KNOP) was in 6 hedge funds’ portfolios at the end of March. KNOP has experienced an increase in activity from the world’s largest hedge funds of late. There were 5 hedge funds in our database with KNOP holdings at the end of the previous quarter. Our calculations also showed that KNOP isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the fresh hedge fund action regarding KNOT Offshore Partners LP (NYSE:KNOP).
What have hedge funds been doing with KNOT Offshore Partners LP (NYSE:KNOP)?
At Q1’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in KNOP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of KNOT Offshore Partners LP (NYSE:KNOP), with a stake worth $14.9 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $4.3 million. McKinley Capital Management, Citadel Investment Group, and Citadel Investment Group 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 McKinley Capital Management allocated the biggest weight to KNOT Offshore Partners LP (NYSE:KNOP), around 0.05% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to KNOP.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Engineers Gate Manager, managed by Greg Eisner, established the biggest position in KNOT Offshore Partners LP (NYSE:KNOP). Engineers Gate Manager had $0.2 million invested in the company at the end of the quarter. Frederick DiSanto’s Ancora Advisors also made a $0 million investment in the stock during the quarter.
Let’s also examine hedge fund activity in other stocks similar to KNOT Offshore Partners LP (NYSE:KNOP). These stocks are Hanmi Financial Corp (NASDAQ:HAFC), Quanex Building Products Corporation (NYSE:NX), Experience Investment Corp. (NASDAQ:EXPC), and Sorrento Therapeutics Inc (NASDAQ:SRNE). This group of stocks’ market caps are closest to KNOP’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 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $20 million in KNOP’s case. Experience Investment Corp. (NASDAQ:EXPC) is the most popular stock in this table. On the other hand Sorrento Therapeutics Inc (NASDAQ:SRNE) is the least popular one with only 5 bullish hedge fund positions. KNOT Offshore Partners LP (NYSE:KNOP) is not the least popular stock in this group but hedge fund interest is still below average. 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 gained 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on KNOP as the stock returned 62.6% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.