Kansas City Southern (KSU) vs. Hedge Fund Favorites in 2019

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Kansas City Southern (NYSE:KSU).

Is Kansas City Southern (NYSE:KSU) a good investment now? The best stock pickers are buying. The number of long hedge fund positions improved by 2 recently. Our calculations also showed that KSU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Kansas City Southern (NYSE:KSU).

How are hedge funds trading Kansas City Southern (NYSE:KSU)?

At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KSU over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Citadel Investment Group was the largest shareholder of Kansas City Southern (NYSE:KSU), with a stake worth $126.7 million reported as of the end of September. Trailing Citadel Investment Group was Fisher Asset Management, which amassed a stake valued at $75.8 million. Interval Partners, Winton Capital Management, and Scopus Asset Management 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 Marlowe Partners allocated the biggest weight to Kansas City Southern (NYSE:KSU), around 6.27% of its 13F portfolio. 3G Capital is also relatively very bullish on the stock, earmarking 4.68 percent of its 13F equity portfolio to KSU.

As industrywide interest jumped, key money managers have jumped into Kansas City Southern (NYSE:KSU) headfirst. Encompass Capital Advisors, managed by Todd J. Kantor, assembled the largest position in Kansas City Southern (NYSE:KSU). Encompass Capital Advisors had $13.3 million invested in the company at the end of the quarter. Karim Abbadi and Edward McBride’s Centiva Capital also initiated a $6.7 million position during the quarter. The other funds with brand new KSU positions are Benjamin A. Smith’s Laurion Capital Management, David Costen Haley’s HBK Investments, and Robert Bishop’s Impala Asset Management.

Let’s now take a look at hedge fund activity in other stocks similar to Kansas City Southern (NYSE:KSU). These stocks are Discovery Inc. (NASDAQ:DISCK), Burlington Stores Inc (NYSE:BURL), W.R. Berkley Corporation (NYSE:WRB), and The Liberty SiriusXM Group (NASDAQ:LSXMA). All of these stocks’ market caps resemble KSU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DISCK 30 727071 0
BURL 37 1512597 6
WRB 21 337881 -2
LSXMA 39 1484908 5
Average 31.75 1015614 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $1016 million. That figure was $551 million in KSU’s case. The Liberty SiriusXM Group (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand W.R. Berkley Corporation (NYSE:WRB) is the least popular one with only 21 bullish hedge fund positions. Kansas City Southern (NYSE:KSU) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on KSU as the stock returned 62.5% in 2019 through December 23rd and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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