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Is Kornit Digital Ltd. (KRNT) Going to Burn These Hedge Funds?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Kornit Digital Ltd. (NASDAQ:KRNT).

Is Kornit Digital Ltd. (NASDAQ:KRNT) the right investment to pursue these days? The best stock pickers are turning less bullish. The number of bullish hedge fund positions went down by 1 recently. Our calculations also showed that KRNT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). KRNT was in 12 hedge funds’ portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with KRNT positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to check out the recent hedge fund action encompassing Kornit Digital Ltd. (NASDAQ:KRNT).

How are hedge funds trading Kornit Digital Ltd. (NASDAQ:KRNT)?

At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in KRNT 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.

Among these funds, Rima Senvest Management held the most valuable stake in Kornit Digital Ltd. (NASDAQ:KRNT), which was worth $12.9 million at the end of the third quarter. On the second spot was G2 Investment Partners Management which amassed $10.3 million worth of shares. Intrinsic Edge Capital, D E Shaw, and Driehaus Capital 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 G2 Investment Partners Management allocated the biggest weight to Kornit Digital Ltd. (NASDAQ:KRNT), around 2.93% of its 13F portfolio. Rima Senvest Management is also relatively very bullish on the stock, designating 1.11 percent of its 13F equity portfolio to KRNT.

Judging by the fact that Kornit Digital Ltd. (NASDAQ:KRNT) has faced a decline in interest from the smart money, it’s easy to see that there was a specific group of fund managers who were dropping their positions entirely last quarter. Intriguingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $2.2 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also sold off its stock, about $1.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Kornit Digital Ltd. (NASDAQ:KRNT). These stocks are Arbor Realty Trust, Inc. (NYSE:ABR), Meta Financial Group Inc. (NASDAQ:CASH), Designer Brands Inc. (NYSE:DBI), and Safehold Inc. (NYSE:SAFE). This group of stocks’ market caps are similar to KRNT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ABR 12 99896 -2
CASH 14 127610 2
DBI 19 115186 3
SAFE 8 11924 5
Average 13.25 88654 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $54 million in KRNT’s case. Designer Brands Inc. (NYSE:DBI) is the most popular stock in this table. On the other hand Safehold Inc. (NYSE:SAFE) is the least popular one with only 8 bullish hedge fund positions. Kornit Digital Ltd. (NASDAQ:KRNT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on KRNT as the stock returned 10.8% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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