Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Kimberly Clark Corporation (NYSE:KMB).
Is Kimberly Clark Corporation (NYSE:KMB) a healthy stock for your portfolio? Prominent investors are turning bullish. The number of bullish hedge fund positions inched up by 11 lately. Our calculations also showed that KMB isn’t among the 30 most popular stocks among hedge funds. KMB was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 26 hedge funds in our database with KMB positions at the end of the previous quarter.
According to most market participants, hedge funds are seen as worthless, old investment vehicles of years past. While there are more than 8000 funds in operation at present, Our researchers look at the aristocrats of this group, approximately 750 funds. These money managers shepherd bulk of the smart money’s total asset base, and by following their highest performing stock picks, Insider Monkey has formulated many investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by nearly 5 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
Let’s view the latest hedge fund action regarding Kimberly Clark Corporation (NYSE:KMB).
What have hedge funds been doing with Kimberly Clark Corporation (NYSE:KMB)?
At the end of the fourth quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 42% from the second quarter of 2018. By comparison, 29 hedge funds held shares or bullish call options in KMB a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Kimberly Clark Corporation (NYSE:KMB), with a stake worth $177.1 million reported as of the end of September. Trailing Citadel Investment Group was Diamond Hill Capital, which amassed a stake valued at $168 million. Alkeon Capital Management, Two Sigma Advisors, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in Kimberly Clark Corporation (NYSE:KMB). Point72 Asset Management had $34.1 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $28.4 million investment in the stock during the quarter. The following funds were also among the new KMB investors: Clint Carlson’s Carlson Capital, Jim Simons’s Renaissance Technologies, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s check out hedge fund activity in other stocks similar to Kimberly Clark Corporation (NYSE:KMB). We will take a look at Humana Inc (NYSE:HUM), Brookfield Asset Management Inc. (NYSE:BAM), Mizuho Financial Group Inc. (NYSE:MFG), and Waste Management, Inc. (NYSE:WM). This group of stocks’ market caps are closest to KMB’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 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1742 million. That figure was $779 million in KMB’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 4 bullish hedge fund positions. Kimberly Clark Corporation (NYSE:KMB) 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately KMB wasn’t in this group. Hedge funds that bet on KMB were disappointed as the stock returned 6.4% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.