Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
KKR & Co. L.P. (NYSE:KKR) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds’ portfolios at the end of the third quarter of 2016, same as a quarter earlier. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as WABCO Holdings Inc. (NYSE:WBC), Companhia de Saneamento Basico (ADR) (NYSE:SBS), and OGE Energy Corp. (NYSE:OGE) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Hedge fund activity in KKR & Co. L.P. (NYSE:KKR)
Heading into the fourth quarter of 2016, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter of 2016. On the other hand, there were a total of 23 hedge funds with a bullish position in KKR at the beginning of this year, so hedge fund ownership of the stock is up minimally in 2016. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, John W. Rogers’ Ariel Investments has the most valuable position in KKR & Co. L.P. (NYSE:KKR), worth close to $152 million, accounting for 1.8% of its total 13F portfolio. The second most bullish fund manager is GMT Capital, led by Thomas E. Claugus, holding a $74.1 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions comprise John A. Levin’s Levin Capital Strategies and Gregg J. Powers’ Private Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that dumped their entire stakes in the stock during the third quarter. Intriguingly, Ken Griffin’s Citadel Investment Group dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, worth an estimated $2.6 million in call options, and Eric Halet and Davide Serra’s Algebris Investments was right behind this move, as the fund dropped about $1.5 million worth of shares.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as KKR & Co. L.P. (NYSE:KKR) but similarly valued. We will take a look at WABCO Holdings Inc. (NYSE:WBC), Companhia de Saneamento Basico (ADR) (NYSE:SBS), OGE Energy Corp. (NYSE:OGE), and TransUnion (NYSE:TRU). All of these stocks’ market caps are closest to KKR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $596 million. That figure was $477 million in KKR’s case. WABCO Holdings Inc. (NYSE:WBC) is the most popular stock in this table. On the other hand OGE Energy Corp. (NYSE:OGE) is the least popular one with only 13 bullish hedge fund positions. KKR & Co. L.P. (NYSE:KKR) 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. In this regard WBC might be a better candidate to consider taking a long position in.