Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is KEMET Corporation (NYSE:KEM) the right pick for your portfolio? Money managers are becoming less confident. The number of bullish hedge fund positions retreated by 2 in recent months. Our calculations also showed that kem isn’t among the 30 most popular stocks among hedge funds.
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 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 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 our short portfolio.
Paul Marshall of Marshall Wace
We’re going to take a look at the new hedge fund action encompassing KEMET Corporation (NYSE:KEM).
What have hedge funds been doing with KEMET Corporation (NYSE:KEM)?
Heading into the second quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in KEM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in KEMET Corporation (NYSE:KEM) was held by Point72 Asset Management, which reported holding $26.9 million worth of stock at the end of March. It was followed by Nokomis Capital with a $23.2 million position. Other investors bullish on the company included Royce & Associates, Daruma Asset Management, and Marshall Wace LLP.
Since KEMET Corporation (NYSE:KEM) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds who sold off their positions entirely last quarter. It’s worth mentioning that Ira Unschuld’s Brant Point Investment Management sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at about $2.6 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund dumped about $1.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to KEMET Corporation (NYSE:KEM). We will take a look at Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA), InflaRx N.V. (NASDAQ:IFRX), Third Point Reinsurance Ltd (NYSE:TPRE), and FB Financial Corporation (NYSE:FBK). This group of stocks’ market caps are closest to KEM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KNSA | 10 | 107729 | 2 |
| IFRX | 15 | 411437 | 2 |
| TPRE | 19 | 76399 | 1 |
| FBK | 5 | 100875 | -3 |
| Average | 12.25 | 174110 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $154 million in KEM’s case. Third Point Reinsurance Ltd (NYSE:TPRE) is the most popular stock in this table. On the other hand FB Financial Corporation (NYSE:FBK) is the least popular one with only 5 bullish hedge fund positions. KEMET Corporation (NYSE:KEM) 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 KEM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KEM were disappointed as the stock returned -1.9% 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.
